The impact of the new social security laws on couples and ex-spouses
The Bipartisan Budget Act of 2015 and Social Security Changes
The new social security laws of 2015 eliminated the strategies of “claim now and claim more later” and “spousal switching.” As a result, the worst-case scenario for couples is that they will not receive the four years of spousal social security payments they believed they would get. For some couples with more than one income, that means they will receive lower benefits from age 66 to age 70.
Restricted filing option for couples is becoming obsolete
Some married couples planning to allow one spouse to file a restricted claim at full retirement age to take advantage of spousal benefits (allowing their own benefit to continue growing until they reach age 70) will find that this is no longer possible. Individuals born on or after January 2, 1954 are not able to take this option.
Voluntary payment suspension also means suspension of related benefits
The Bipartisan Budget Act of 2015 also changed the rules regarding the suspension of voluntary payments. For couples, it often made sense for the higher-earning spouse to suspend payments upon reaching full retirement age. This would allow their spouse to collect spousal benefits. Then, by age 70, the higher-earning individual could claim the benefit at age 70.
The Social Security Reform Act of 2016
Here’s a brief look at the recent proposed changes:
– For those born in 1960 or later, the full retirement age will increase from 67 to 69.
– High-income retirees will not see a cost-of-living adjustment (COLA), while low-income retirees may experience a substantial COLA.
– Beginning in 2045, the taxation of social security payments will gradually be eliminated.
– The earnings test will be eliminated. This will give individuals a good reason to remain working during early retirement while receiving social security payments.
– A change will be made in how payments are calculated so that low-income workers will see an increase in payments.
It is impossible to accurately predict the final shape of the changes or when such a law may be passed. The major changes are likely to be phased in, as it takes time to make adjustments in payment calculations.
The average person close to retirement or receiving social security payments will not see a significant impact if these proposed changes are implemented.
Source: https://www.thebalancemoney.com/new-social-security-laws-affect-couples-and-ex-spouses-2388928
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