What the budget act of 2016 means for for Social Security

On Nov. 2, President Barack Obama signed into law the bipartisan budget bill in an attempt to help avoid financial default for our country.

Passage of the bill helped to protect the Social Security Disability Trust that provides monthly income to more than 14 million Americans with disabilities and it also helped to keep Medicare premium increases from skyrocketing out of control.

Without this bill people who receive disability benefits would have had their monthly checks cut by 20 percent and most of these individuals need that monthly check from the government just to survive.

While the new budget has some clear benefits for Americans, it also has some negative implications, especially for retirees and pre-retirees who are trying to decide when and how to elect their Social Security retirement benefits.

Social Security has not yet released information regarding the new claiming rules to their claims representatives and staff as of this writing. However, I think it is important for the public to understand (in general terms) what has and what hasn't changed in terms of filing for Social Security retirement income.

The first change concerns a claiming strategy called a Restricted Application. Before the law a person eligible for a benefit under his or her spouse's earnings record and also eligible for a benefit under his or her own earnings record could, at full retirement age, choose to elect only a spousal benefit and then let their own benefit amount roll up 8 percent yearly. This roll up is called a delayed retirement credit. Using this strategy allowed the individual to receive monthly income benefits under their spouse's record and then later claim under their own record and receive the higher amount. Workers born before Jan. 1, 1954 will still have this option because they will be ‘grandfathered.'

For people born Jan. 1, 1954 and later, filing a Restricted Application is no longer viable because Social Security refers to this claiming strategy as ‘deemed filing' which means the individual has chosen to take a lower amount than what is actually available to them and this is no longer allowable.

The second change concerns File and Suspend. Under the previous law, a person could at full retirement age file for benefits and then request that no checks be sent. Using this strategy would allow the primary earner's benefit to roll-up 8 percent yearly, therefore, creating a higher monthly payment amount at his or her death to the surviving spouse. This strategy still is available to people already aged 66 and who request it within the next 180 days, (by May 1, 2016), and it is also available to individuals who are already using this strategy.

Divorced Spousal Benefits have been changed much like the restricted application. For people born Jan. 1, 1954 and beyond, filing for an ex-spousal benefit while earning delayed retirement credits on your own benefit will no longer be allowed. Under the new rules, divorced spousal benefits are still available but only if a person's retirement benefit is lower than their divorced spousal benefit.

Survivor Benefits rules have not changed. This is good news because it means that a surviving spouse of a deceased worker can still apply for and receive survivor benefits while receiving the 8 percent roll up on their own benefit amount which gives them the opportunity to move to a higher payment amount at a later date.

The new rules with respect to Social Security retirement filing seem to have a blend of three sets of rules - rules for people at full retirement age who file and suspend within the next 180 days, rules for people born before Jan. 1, 1954, and rules for people born after Jan. 1, 1954.

For married couples deciding when and how to elect can be even more difficult with these new rules, because each spouse in a marriage will now have their own set of rules to follow based on their birth date. This can make it especially difficult for couples deciding when and how to file for their benefits.

This my interpretation of the new changes to Social Security retirement.

' Frank A. Varvaris has provided specialized planning assistance, including benefits planning, to all people and especially to people with disabilities and their families since 1990. Comments: (319) 862-0363; frank@disabilityplannng.org