Some of the rules governing claiming spousal benefits will change in 2016. Image: SSA.
For 80 years, Social Security has been a key part of how Americans ensure their financial security after they retire. As reliable as Social Security has been, it has often gone through major changes, and 2016 will be an unusually active year for the program as important legal revisions take effect. Let's look more closely at some of the biggest changes to Social Security for 2016 as well as what's not changing.
File and suspend will go away in May The biggest change to Social Security for 2016 is the loss of the file and suspend strategy, which was part of the budget deal that passed in November. With the effective date of that part of the law set for 180 days after its passage, the date on which file and suspend will no longer be available is May 1. April 30 is a Saturday, however, so the last effective date to file and suspend will probably be April 29.
If you are eligible to file and suspend and do so before that date, family members will still be able to claim spousal or children's benefits based on your work history. However, you have to have reached full retirement age to use the file and suspend strategy, and so those who won't hit the 66-year-old mark by May won't qualify for the grandfathering provisions of the new law. You can still suspend your benefits if you want, but if you do so, your spouse and children will also be forced to suspend any family benefits tied to your work record. Therefore, those who are old enough to consider file and suspend still have time to implement the strategy, but the clock is ticking.
Restricted applications won't be available for those reaching early retirement ageThe restricted application or file as a spouse first strategy was also affected by the budget deal, but the law's impact on the strategy is different. The law increases the age at which filing for spousal benefits is automatically deemed to be a filing for one's own retirement benefits as well, moving it from 66 to 70. Under previous law, the file as a spouse first strategy involved filing a restricted application at age 66 or later to receive spousal benefits only, leaving your own retirement benefits to collect delayed retirement credits and grow. The law effectively makes restricted applications unavailable, since age 70 is the latest date at which one would wait to claim retirement benefits.
The good news is that those who turn 62 by the end of 2015 will still be able to file restricted applications when they reach full retirement age, even if it takes several years before they're actually eligible to do so. Those whose 62nd birthday is in 2016 -- other than January 1, which by a quirky Social Security law is treated as if it were still in 2015 -- will not be eligible to use the file as a spouse first strategy. For future planning purposes, that line in the sand at the beginning of 2016 will be important in assessing which options are available to you.
Several regular annual increases will take effectTypically, various aspects of the Social Security program are subject to annual changes. For 2016, the amount of earnings needed for a quarter of coverage will rise $40 to $1,260, and the earnings threshold constituting substantial gainful activity for disabled beneficiaries other than the blind will rose $40 to $1,130.
In addition, the formula for calculating Social Security benefits will change slightly. The so-called bend points for benefits will rise, with the lower bend point up $30 to $856 and the upper bend point climbing $177 to $5,157. Similar increases will also affect the maximum family benefit formula, which puts an upper bound on the total amount of benefits family members can collect on a single person's work history.
What's staying the same with Social SecurityIn some ways, the things that aren't changing with Social Security are as important and controversial as what is changing. The most important part of Social Security that will stay the same in 2016 is the monthly benefit that current recipients get. Because inflation remained in check during 2015, the Social Security Administration will make no cost-of-living adjustment to benefits next year.
In addition, several threshold amounts will stay the same in 2016. The wage base on which the government collects Social Security taxes will stay at 2015's level of $118,500, and the earned-income limits for those who take benefits before full retirement age will stay at $15,720 for those younger than full retirement age all year and $41,880 for those who hit their full retirement age during 2016.
Social Security provides a solid financial foundation for tens of millions of American retirees. Although these changes are substantial, they won't change the fact that Social Security will keep paying benefits that make up a large fraction of total income for many of its participants.
The article 3 Changes to Social Security in 2016 originally appeared on Fool.com.
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