A number of revisions to Social Security will take effect in 2016, as the Social Security Administration looks to close loopholes. Below, we discuss the 5 most important changes coming to Social Security.
1. Contributions May Not Lead to Extra Benefits
Even if you work every day from age 15 until your retirement at 66, if your spouse’s earnings were higher than yours, your benefit is never greater than your spouse’s benefit. If you were 62 before January 2, 2016, and your spouse already filed for his or her retirement benefit and had greater total earnings, collecting the spousal benefit is your best option.
Even if you file for your own retirement benefit at age 70, your benefit continues to equal the spousal benefit, even though Social Security describes it as your benefit plus the excess of the spousal benefit. In other words, there is no extra benefit for contributing those extra years.
If your spouse pre-deceases you, the survivor benefit is even higher than the spousal benefit, and therefore higher than your retirement benefit. Of the three, you collect the survivor benefit.
2. Deemed Filing
Deemed Filing, formally called”Timing of Multiple Benefits,” closes a loophole that allowed retirees to grow their benefit by delaying their claim while still receiving spousal benefits.
Before 2016, those under the age of 66 who were eligible for benefits as both a spouse and a retired worker, were required to apply for both benefits and would then receive the higher of the two.
As of 2016, deemed filing also applies to those who reach full retirement age, as well as those past it. So, if you receive a retirement benefit but then later qualify for a spousal benefit (or the other way around), the new law marks you as having applied for the second benefit upon achieving eligibility. As with the old law, you receive the higher of the two benefits.
3. Cost of Living Adjustment
Social Security and Supplemental Security Income (SSI) benefits increase with inflation, commonly referred to as a cost of living adjustment (COLA). The Bureau of Labor Statistics (BLS) measures any increases in inflation from the third quarter of one year through the third quarter of the previous year. BLS measured no such increase in inflation for 2015.
The result is no COLA increase in 2016. This also means there are no changes to taxable earnings or earning limits. In 2016, the maximum earnings subject to Social Security tax is $118,500.
The earnings limit for individuals under age 66, the “full” retirement age, is $15,720. For every $2 you earn over the limit, Social Security deducts $1 from your benefits. People who achieve full retirement age during 2016 have an earnings limit of $41,880, losing $1 in benefits for every $3 they earn over the limit. If you were 66 when 2016 began, there is no earnings limit.
4. One for Two
If you reached age 62 before January 2, 2016, you may claim your spousal benefit at full retirement age, and your retirement benefit upon turning 70. Spouses widowed before claiming their retirement benefit may take the widow’s or widower’s benefit before taking the retirement benefit. Qualified divorced widows and widowers may do the same.
5. File as a Spouse First
“File as a Spouse First”, commonly referred to as FAASF, is a restricted application strategy affected by the budget deal, although the law affected it differently by increasing the age one is deemed to have filed for a retirement benefit after filing for the spousal benefit. Previously, FAASF allowed filing a restricted application to receive spousal benefits at age 66 (or later). You could then leave your benefit and enjoy delayed-retirement credits. The new law forbids restricted applications, as you may no longer wait to claim benefits until after age 70.
This does not apply to those who were 62 before January 2, 2016. They may still file restricted applications upon reaching full retirement age.
The result of the Social Security legislation going into effect in 2016 revolves around how beneficiaries retirement benefits and spousal benefits. Click here to review the changes that may affect you and your retirement.