Recent Changes to Social Security Benefits

Published August 10, 2017
Recent changes to the Social Security Act affect how married couples can claim for spousal benefits. Find out if these amendments change your claiming strategy.
  • The first change has to do with a claiming strategy for married couples called “file and suspend”
  • The second change is called “restricted application”

As part of the Bipartisan Budget Act of 2015, Congress rewrote select rules of the Social Security Act as a way to save money and improve the financial status of Social Security without affecting the benefits of retirees who need them most. While the rules prior to the revisions were thought of as loophole strategies to maximize spousal benefits, it’s important to take note of the changes made.

The first change has to do with a claiming strategy for married couples called “file and suspend.” The second change is with regard to a strategy called “restricted application.” We’ve outlined the details of these two changes here:

Prior to Revision Post 2015 Revisions
File and Suspend At Full Retirement Age (age 66) your spouse can file for benefits and suspend receipt of that income. Meanwhile, you can file for and receive spousal benefits while your spouse holds off on receiving their own Social Security benefits. Because your spouse has held off on receiving their own Social Security Benefits, he/she will receive Delayed Retirement Credits that will increase his/her income stream by 8% for each year he/she continues to delay receipt of benefits up until age 70. If your spouse turned 66 by April 29, 2016 – the date when the new rule went into effect- you can still file and suspend under the old rule.

If your spouse turned 66 after this date, you can still file and suspend your own benefits and earn Delayed Retirement Credits until age 70. But, your spouse cannot collect on your work record while your own benefits are delayed. That is, your spouse can only collect spousal benefits while you’re currently receiving your own benefits.

Restricted Application At Full Retirement Age (age 66) you can file a restricted application so that you only receive a spousal benefit. This way, you receive the spousal benefit while allowing your own Social Security benefit to accumulate Delayed Retirement Credits up until age 70. If you are eligible for a spousal benefit and a benefit under your own work record, you will have to file for both at the same time. Social Security will give you the greater of these two.

 

The Three-Legged Stool

The old retirement adage says that we should use the three-legged stool approach to prepare for retirement:

  1. Social Security – This is the government’s retirement plan for us. As long as you’re working (to earn the credits required addressed above) and paying taxes, you’re earning Social Security credits. When you retire, you’ll start receiving monthly Social Security income that will continue for as long as you’re alive.
  2. Pensions – This is the form employer retirement plans used to take. They provided a steady monthly paycheck no matter what happened in the market and no matter how long you lived. Because Social Security only covers, on average, 40% of one’s retirement expenses, people leaned on pensions for the rest. The problem today is that the second leg of the three-legged stool is wobbly or gone. Instead of offering pensions, employers are providing 401(k)s and matching contributions, which helps with the third stool.
  3. Personal Savings – So that you have access to money outside of, and beyond, monthly Social Security and pension checks, you need to save on your own. This money is generally invested differently to serve two purposes. First, money invested in liquid money market or savings accounts provides a cushion and access to extra cash in case of emergency. Second, money beyond that can be invested in the market for a high potential return. This is the money you’re comfortable losing.

How to Supplement Your Social Security

According to the Social Security Administration, individuals aged 65 and over in the top quartile for income (an average of $78,180) received only 18% of their income from Social Security. So where does the remaining 82% come from?

1. Enroll in the Personal Pension

Your Personal Pension is backed by insurance companies which guarantee that for every dollar you contribute, you will receive a certain amount of income every month starting when you retire. Unlike an income annuity, the Personal Pension allows you to contribute incrementally, in smaller amounts and at a younger age, similar to the way you’d put aside money in your savings account or 401(k).

2. Purchasing an income annuity

Similar to the Personal Pension, income annuities provide a guaranteed lifetime stream of income during your retirement. However, instead of contributing over time, you pay a lump sum upfront to purchase your annuity from an insurance company. Then, the insurance company sends you a series of payments for the rest of your life.

How Can I Start a Personal Pension?

A Personal Pension is a contract between you and top rated insurance companies. By making contributions to your Personal Pension over time, you develop a portfolio of guaranteed income available in retirement. Blueprint Income offers a Personal Pension account with the lowest minimum, $5,000. After opening an account, you can make subsequent contributions of as little as $100, each of which will increase your pension check.

Here you can see what contributing to a Personal Pension will guarantee you in retirement income. After just a few years in retirement, you’ll have recouped your initial investment, and the rest will be profit.

You can continue with the enrollment process on your own or fill out the information to have one of our specialists follow up with you by starting with the Personal Pension Builder, where you’ll be able to set a goal for how to grow your pension over time. Note that all future contributions are optional, but it’s always great to have a goal.

How Can I Purchase an Income Annuity?

At Blueprint Income, we offer annuities from more than 15 top rated insurance companies. Click below to get real-time personalized quotes.

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From there, you’ll get access to our annuity guides and team of specialists to help you analyze your retirement finances and walk you through the application process.

Lauren Minches

Lauren Minches

Financial Planning Professional

Lauren is an actuary by training with expertise in retirement, finance, and risk. She writes about annuities to make them easier to understand and evaluate. Her goal is to help people create retirements with more time for living and less time thinking about money.