By Bob Williams
You've heard it said that the government giveth and the government taketh away. It's happening again. This time retirement dollars for couples are being taken.
With the passage of the Bipartisan Budget Act of 2015 Congress prohibited spouses from coordinating Social Security Benefits. Now, Americans on the brink of retirement are scrambling to see how much damage was done to their golden years.
One of the affected Social Security rules is file-and-suspend. Currently, it works like this. When you reach Full Retirement Age (FRA) you file for your SS benefit and then immediately suspend it so the government won't send you a check. This defers your earnings credits, which continue to compound by 8 percent each year until you reach age 70. Even though you're not getting a check, it allows your spouse to file for a benefit based on your work history. It also allows your spouse's earnings record to compound until they are 70. At that time, the spouse makes a decision whether to switch to their own benefit, if it's larger than what they've been receiving.
As of May 1, 2016, file-and-suspend will no longer be an option. On that date, you must already be drawing your own benefit before your spouse is allowed to receive a benefit based on your earnings history.
There is good news for anyone currently 66 years old or will be by April 30, 2016. You can still utilize the old file-and-suspend rules but you have to hurry.
The Congressional action also affects Restricted Applications, which has similarities to file-and-suspend. Until now, a person between their FRA and 70 years old can file a restricted application to claim spousal benefits and defer their own benefits until age 70. At 70, they have the option of receiving Social Security benefits based on their own work history if that amount is greater than the spousal benefit.
Under the new rules, when a spouse files for benefits any time after age 62, that person will be deemed to have taken their own benefit - the "deemed filing" rule. After May 1, 2016, a spouse, no matter what age, can only receive the larger of the spousal benefit or their own benefit. Once you choose, that's it. The spouse will no longer have the option of switching to a higher benefit at age 70.
If your retirement plan includes use of either of these strategies and you are planning on retiring in the near future, schedule some time with your financial team-QUICKLY. These changes may force you to rethink when you retire, if you'll have enough retirement income and whether your plan needs to be modified. The clock is ticking and time is not on your side.