Setting the Clocks Back: Bracing for the Darkness
If you’re saving for the future, most likely Social Security retirement benefits are part of your retirement plan.
In this country, 96 percent of workers are covered under Social Security. Therefore, it’s important to understand how any legislative changes to Social Security retirement benefits affect you.
Today, we discuss how the Bipartisan Budget Act of 2015 affects Social Security, but first let’s begin by understanding how these benefits work.
What Are Social Security Retirement Benefits
Social Security retirement benefits were created to financially help older Americans after retirement. When you’re in the workforce and pay Social Security taxes, you earn “credits” toward Social Security benefits.
You must earn a certain number of credits to qualify for Social Security benefits. In order to earn credits, you must earn a certain amount in eligible wages. You can earn up to four credits per calendar year. For 2016, you must earn $1,260 for each credit – so for the full four credits you must earn at least $5,040.
The number of credits you need in order to receive benefits depends on your age when you apply and the type of benefit application. For retirement benefits, unless you were born before 1929, you will generally need 40 credits (10 years of work). This may change if you became disabled before reaching retirement age – workers who become disabled at a younger age can qualify for benefits with fewer than 40 credits.
If you stop working before you have enough credits to qualify for retirement benefits, your credits remain on your Social Security records. If you go back to work at a later time, you can add more credits and qualify.
Note that you will not be paid any retirement benefits until you have the required number of credits.
How The Bipartisan Budget Act of 2015 Affects Social Security
Signed by the President in November, The Bipartisan Budget Act of 2015, makes major changes to the Social Security program that affect the benefits you will qualify for in retirement.
Changes to Social Security retirement benefits include:
Elimination of “file and suspend claiming” strategies: This bill eliminates these claiming strategies as of May 1, 2016. Married couples use the “file and suspend” claiming strategy today to simultaneously get a benefit from Social Security while deferring at least one spouse’s retirement benefits into the future. This allows married couples to take advantage of the deferral credits that increase Social Security retirement benefits by eight percent per year after full retirement age and still get a Social Security benefit payout each month.
Extending “deemed filing”: If you are married and turn 62, you may qualify for both a spousal benefit and a worker’s benefit. If you’re entitled to both benefits and filed a claim between age 62 and full retirement age, in theory you would have filed for the larger of the two benefits, also known as the “deemed filing rule”. This rule gave a person waiting to file until full retirement age the option to elect the spousal benefit and then switch to the worker’s benefit by age 70. This allowed individuals to receive the spousal benefit while deferring the worker’s benefit, which could continue to grow with deferral credits. The budget bill eliminates this opportunity to switch benefits by extending the “deemed filing” to age 70. Now, anyone filing for benefits will receive the larger of either the worker’s or spousal benefit.
Your Core Social Security Retirements Benefits Remain the Same
Despite these changes, it’s important to note that the core benefits of your Social Security retirement benefits remain unchanged.
The calculations for benefits as well as factors used to calculate benefits that are claimed early or are deferred will stay the same. You can use the official Social Security Retirement Estimator to get an estimate based on your actual Social Security earnings record. Please keep in mind that these are just estimates.
If you’d like to learn more about how this budget act affects your Social Security retirement benefits consult with your financial advisor today.
Image Credit: 401kcalculator.org
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