Two Little Known Social Security Benefits Are Ending

Congress is looking into ceasing two very useful, albeit know well known, benefits of Social Security. One includes the ability of a spouse to collect extra benefits, the other restricts a client’s ability to get back benefits they had previously decided not to receive and then change their mind later on.
Not too long ago, Paul Ryan proposed that the full retirement age for claiming social security should be extended from age 67 to 69 over the period of 40 years—this never saw the light of day because of immense public outcry. Fast forward to today—the Bipartisan Budget Act of 2015. This bill may cost Social Security recipients much more in benefits (and much sooner) than Ryan’s suggestion. But this act has received nowhere close to the public outcry as its predecessor.
The reason for this? The benefits that this act removes from Social Security are not well known by the average American—they’re a bit complex, but they can add up to tens of thousands of dollars in immediate cash benefit for almost all Social Security recipients.
Congress passed a bill that ends a benefit called file-and-suspend. This benefit formerly applied to married couples and allowed the higher-earning spouse to file for their Social Security at full retirement age (at this time, this is 66), but to suspend taking the benefit so it increases 8% a year until they turn 70. This enabled the lower-earning spouse to begin receiving spousal benefits by filing for spousal benefits only. This also allowed the lower-earning spouse’s benefit to continue to increase by 8% a year as well.
The bill will discontinue this benefit as well as restrict the lower-earning spouse from receiving spousal benefits until the higher-earning spouse actually begins to receive Social Security payments. Meaning if clients wait until 70 to take the highest monthly Social Security benefit possible, their spouse will also have to wait until the client turns 70 to receive spousal benefits.
To paint this picture, let’s assume your client’s full retirement age benefit tops out at $4,000 per month. Their spouse has a full retirement benefit of $750. Currently, the spouse could receive up to three times more– $2250 a month, by age 66— if the client suspends their right to begin receiving monthly benefits. By waiting until 70, the client would see their benefit climb closer to $5,000 a month. In the new legislation, the spouse would have to wait until the client turns 70 to claim that $2250, potentially costing the couple $2250 a month for 4 years or$108,000.
The second benefit ended by this act affects anyone covered under the Social Security program—no matter if you’re married or not. This is another option that’s available when you file-and-suspend. Prior to the act, when clients hit full retirement age and made the decision to suspend taking benefits, they had the option to change their mind at any point before age 70—retroactively receiving benefits. This could be incredibly valuable in some cases. Let’s say a client had decided to wait until they were 70 to begin receiving benefits, but at 69, they become terminally ill. The client could file to retroactively claim all three years of those benefits they lost. If the client’s full benefit amount was $3000 per month, the total retroactive payments would be $108,000—this option is completely null and void under the new legislation.
The people currently receiving benefits will be grandfathered into the new legislation and will continue to receive them. But anyone currently qualifying for file-and-suspend benefits that do not receive them has 6 months after Congress passes the act to complete their filing process.
These changes may not affect all recipients of Social Security, but for those who are affected, the impact will be significant.