Did you know that several Social Security rules are about to change? If not, you’re not alone! There’s a great deal of confusion about who is affected and what will happen.
True, the upcoming deadline affects a small percentage of people. That said, many of us are concerned they we lose benefits if we don’t take action. Let’s clarify the situation.
If you have not filed an application with the Social Security Administration and you will be 66 years old on or before April 30, 2016*, you could be effected and may want to apply for benefits now. Some opportunities disappear after April 30.
There is no downside to applying. This is true even if you do not plan to collect payments at this time. If you apply after the deadline, you may not be eligible for certain options later such as benefits for your spouse or the bulk payment option.
If you are already receiving Social Security payments, this does not affect you. You will continue receiving your payments as usual. You do not have to do anything.
If you are 66 or older and have filed for benefits and suspended payments, you do not have to do anything.
If you are not 66 years old on or before April 30, 2016, you do not have to do anything. You will be subject to the new laws outlined below when you apply in the future.
So, what does all this mean? Here are a few of the specific options that may be impacted.
Current Law – You can file for benefits at age 66 and decide not to receive payments. This is called the File and Suspend.
Why might you want to do this? When you file, your spouse becomes eligible for spousal support. Your spouse can now collect payments even though your benefit is suspended. Over the four years between 66 and 70, spousal support can amount to as much as $63,000.
While your payments are suspended, your monthly payment amount increases 8% per year.
New Law – If you suspend your payment, you stop other payments associated with your record. If you suspend your payment, your spouse will not receive payments either. This does not apply if you are divorced.
Current Law – If you suspend payments, you can later request and receive a bulk payment of any monies you may have missed. For instance, if at 66 your monthly payment is $2,000 and you suspend then at 68 you decide you would like to have that money, you can request back payment of $48,000.
New Law – Once you have suspended payments you are no longer entitled to receive compensation for any monies missed. You will receive the 8% increase per year for waiting to collect after your Full Retirement Age, but the bulk payment option is not available.
Personally, I am sorry to see this benefit go. It provided a safety net for those of us who’s financial or health circumstances changed. It was comforting to know you could always recoup those missed funds if needed.
If you want to dig deeper, check out my 5 tips to new Social Security law.
If this change affects you (you will be 66 on or before April 30), and you haven’t applied for benefits yet, do so now. It is too late to schedule the required interview, but if you file online and indicate your intention to suspend on the remarks tab, you will have filed before the deadline.
It might not seem important now, but, you don’t know what will happen in the future. By filing you give yourself the option of having your spouse (or maybe future spouse) collect benefits on your record. You also become eligible for the bulk payment option, which plays an important role in deciding when to begin collecting benefits.
The file and suspend strategy was an unintended consequence of a law changed in the year 2000. The new law closes a loophole that was never supposed to exist. I’m sure that doesn’t make it easier for those who had planned on this benefit as part of their retirement income. It has especially disappointed those who are retiring soon.
I do wish Congress had phased it out over several years rather than a sudden cutoff in six months. It would have given people time to adjust their retirement plan and compensate for the loss of income.
The change in the law has confused many people and caused a lot of anxiety. Rest assured that this does not affect most people.
You only need to take action if you will be 66 on or before April 30, 2016, and have not filed for Social Security. The rest of us can relax and breathe easy.
Author’s Note: There is a discrepancy in the exact date of this upcoming change. I’ve read April 29th, April 30th, May 1st. The deadline is 180 days from November 2, 2015 and this is a leap year. I confirmed with the Social Security Administration that it is April 30th. My suggestion is that if you are turning 66 any time near the cutoff date, apply as soon as possible and at least before April 29th to make sure you are in.
Editor’s Note: Everyone’s financial situation is different, so, we always encourage you to get professional advice before making any financial decisions. Nothing in this article is intended to be financial advice. One option that is always available is to contact the Social Security Administration directly by calling 1-800-772-1213 if you have any questions.
Has this change to Social Security law affected you? Does this change your retirement future? Do you have questions about how this affects you? Please join the conversation.