In the wake of new bipartisan legislation, two popular Social Security claiming strategies for married couples are about to become history. The changes reflect the importance of saving and planning ahead, to ensure you’ll have enough income in retirement to help meet your needs.
On Nov. 2, 2015 Congress made the most significant changes to Social Security since 1983. The Bipartisan Budget Act of 2015 modifies the Social Security “file-and-suspend” and “restricted application” claiming strategies which have been available to millions of married Americans since 2000. The new rules take effect May 1, 2016.
The legislation phases out two popular strategies married couples have used to significantly increase their lifetime Social Security benefit. While many couples will now need to step up their savings strategy to fill in the gap, the reductions will ultimately help to contain costs in the Social Security system and simplify it somewhat by reducing the number of claiming options available.
Here’s how the changes may impact you and what you may want to consider doing:
- If you were born on or before May 1, 1950 take action now to evaluate your options. If you wish to take advantage of the current file-and-suspend rules you must make your election to suspend your benefit by April 30, 2016. Don’t wait until the last minute — you can file three months in advance of your birthday.
- If you were born on or before Jan. 1, 1954, you’ll still be able to file a restricted claim of spousal benefits while allowing your own benefit to receive delayed retirement credits.
- If you miss the cut off dates and had factored these claiming strategies into your retirement income plan, you’ll want to revisit your Social Security options to possibly make adjustments to your retirement income plan.
- If you’re already receiving benefits, you will not be affected by the changes.
Regardless of your age or stage, there are three key steps you can take now to put yourself in a position to be financially prepared for retirement:
- Get your Social Security statement. You can do this by setting up an account at ssa.gov (or you can contact the Social Security Administration to request a paper statement). If you’re 60 or older a statement is mailed annually.
- Understand your benefits and your options. By getting educated and understanding how much monthly income you are likely to receive from Social Security and other savings in retirement, you could be putting yourself in a position to retire better. Voya’s myOrangeMoney® is a great place to start and find out if your savings are on track.
- Get advice from a financial professional or through your workplace. Social Security can be complicated. Before making decisions that impact the rest of your life, talk to a professional to answer your questions about Social Security options and help you plan your retirement income strategy. The 2015 Voya Retire Ready Index study found that individuals who work with a financial professional are more than twice as likely to have calculated how much working income is needed to live securely in retirement.
You can learn more about the new Social Security rules — what’s changing and what’s not — by reading the below frequently asked questions and answers. Also, be sure to check out Voya’s video on the changes here.
FAQs & Answers
What are the Social Security claiming strategies that are changing?
The claiming strategies that are being modified are “suspend” and “restricted application.”
What has NOT been affected?
- The disability program
- Your own earnings record and how it is calculated
- The ability for a non-working spouse to receive a benefit (although the rules are more restricted)
- The widow (or survivor) benefit
What are the changes for the suspend option?
Under the new rule, if a worker “suspends” (delays) his or her benefit to a later date, ALL benefits being paid under his or her earning record will be suspended. This includes spouses, ex-spouses, and children. Prior to the new rule, dependents could receive up to one-half of a worker’s benefit while the worker delayed receiving benefits.
When is the change for suspend taking effect?
This new rule takes effect May 1, 2016. If eligible individuals (people born on or before May 1, 1950) want to suspend but allow others to receive benefits based on their earnings record, they must file and suspend by Apr. 30, 2016.
Who is affected?
Starting May 1, 2016 anyone born after May 1, 1950 who suspends their benefit will suspend the benefit for all others who claim on their record. People who have filed and/or are already receiving benefits are grandfathered in.
What is restricted application and what are the changes?
Restricted application allows individuals with their own earnings record to claim off their spouse (or ex-spouse) earnings record while allowing their own benefit to receive delayed retirement credits. Restricted application is being completely phased out.
Whether retirement is staring you in the face or feels like a distant dream, look at your options early in the planning process and make decisions based on facts. The same Voya study found that 45% of workers plan to rely on Social Security as their primary source of income in retirement. If you need a reality check on your retirement plans, it’s better to get it sooner rather than later so you can adjust your mindset and your plan.
Voya® does not offer tax or legal advice. Consult with your tax and legal advisors regarding your individual situation.
Voya Retire Ready Index™, Voya Retirement Research Institute®, 2015. The Voya Retire Ready Index™ study (published March 30, 2015) measures the retirement readiness levels of Americans who are working and recently retired. The results are based on findings from two online consumer surveys completed between July 14 and July 25, 2014, with Greenwald & Associates, Inc., a fullservice market research firm. Additional findings from the Voya Retire Ready Index™ study are available at: http://corporate.voya.com/sites/corporate.voya.com/files/VoyaRetireReadyIndexReport_0.pdf.