Just this past week a new two-year budget deal, the Bipartisan Budget Act, was passed, bringing with it significant changes to Social Security benefit rules. It specifically places a restriction upon “file and suspend” (for people born in May of 1950 or later) and “spouse then worker” strategies.
First off to provide some background information, a major component of this revolves around one’s full retirement age. Full retirement age (FRA) has gone up; if one was born during or before 1937 then their FRA is 65. Every year after that it has gone up by two months, where it then paused for the years 1943-1954 at the age of 66. Then the trend continued again with each successive year having an additional two months added onto their FRA, until 1960 and on where the FRA is 67. The earliest one can start receiving Social Security retirement has remained at 62. Although it should be noted that if one delays their retirement benefits until their FRA or up to age 70 (and don’t immediately take them at age 62) they can receive delayed retirement credits (an additional 8% per year) that would then help to increase their monthly benefits - this is also true when it comes to receiving a spouse’s benefits.
Now that that is set the two strategies and the changes made to them can be addressed. The ‘file and suspend’ strategy allows a worker (a husband for example) who has reached their FRA to claim and then immediately suspend their benefits, while still allowing their spouse to receive a spousal benefit based on his earnings record. As a result the husband is able to continue working and receive those delayed retirement credits - an action that not only increases his monthly benefits but also his wife’s survivor benefits. This strategy first came about after legislation in 2000, which had set this in place so that people who had felt they’d made a mistake by claiming early to SS could have their payments stopped and earn the delayed credits.
As for the ‘spouse then worker’ strategy, this one allowed a worker with fairly high earnings to begin claiming a benefit as a spouse for several years (as if they were economically dependent upon their spouse), all the while building up their delayed retirement credits toward their own worker’s benefit later. This was able to occur since ‘deeming’ (when a Social Security Administration assumes that the individual who is claiming both types of benefit - worker and spouse - compare the two and then awards the highest) didn’t apply after FRA. The Budget Act has eliminated this ‘loophole’ by requiring ‘deeming’ both before and after the FRA.
In looking at this new budget, there are as always, two sides. Those who are for it include the Obama administration who view these strategies as loopholes since they typically tend to be employed only by higher-income retirees. Furthermore many people view this as good since it will be helping to eliminate the ‘gaming aspect’ of the “file and suspend” provision. Those for it see the use of such strategies as going against the whole purpose of Social Security, which is to replace lost income after retirement, if they become disabled, or die - not to try and ‘cheat the system’. They also point out that the reason that the ‘spouse benefit’ was added by Congress was so that one-earner couples would have a supplement to the retirement, helping to achieve ‘income-adequacy goals. - again not to help wealthy two-earner couples make more money.
On the other hand some argue that these changes really aren’t going to be closing ‘loopholes’ but instead will be furthering a “movement of Social Services toward an income-redistribution program” (Wall Street Journal). In an example outlined by the Wall Street Journal, it came out that a two-earner couple when compared with a one-earner couple would receive much lower benefits ‘per dollar paid into the the SS system.’ The opposition argues that, “the rule changes only exacerbate this inequality per tax dollar paid” (WSJ). As a result of this new budget act it would appear that two-earner couples are paying the price for it.
What do you think about the new budget act? Do you think that there were loopholes to begin with or that this is overstepping and actually resulting in more problems?
How are the candidates going to address this given that many of them have brought up social security during the debates? What impact will this have, if at all on them?
2 comments:
I think that the new budget is an important step in closing loopholes that allowed, like the original post said, for higher-wage, two-income couples to increase the amount of money that they receive from Social Security. File and suspend and spouse then worker strategies should surely be considered loopholes, as they were ways for retirees to earn more money after retirement in a fairly subversive way. Though many of those who used these tactics were probably not being outright malicious, it is still an unfair manipulation of the system and of allowances that were given in the past. Therefore, I believe that the Act is right to close off these avenues of revenue. If, like dissenters contend, the act makes the system more unfair for double-income couples, then perhaps the system should be closely reviewed with this in mind as well. This, however, is an important step towards fairness and equality and away from manipulative behavior. I believe that candidates will address this, hopefully, as it is an important issue that faces an aging population. Seeing as the Obama administration is for the new act, those who have actively campaigned against and disparaged him may also be against this, too. That said, the act is indeed bipartisan, so the candidates--especially the Republicans--will most likely fall on either side of the issue. It may be yet another fracture in the GOP unit.
http://money.usnews.com/money/blogs/planning-to-retire/2015/11/13/how-the-budget-deal-changes-social-security
I agree with Sarah that this legislation is an important step in reforming Social Security. The loopholes in the system are causing money to be funneled out of the system. Social Security is a major cost of the federal government and requires billions of dollars. Any loopholes that exist within the system should be fixed. The Wall Street Journal says that the double income spouses actually benefit less, but I see this as a moot point because whether or not they are benefiting greatly the issue of misusing the system still stands. The retirees are finding ways to earn more money than they are due and granting themselves an unfair advantage that was not meant to exist. Double income couples should not be at a disadvantage in the Social Security realm, but other legislation would need to be passed to remedy any problems in that area; however, I consider this to be a separate issue from the Act that would help prevent file and suspend/ spouse then worker tactics. The law works best when it treats the citizens equally and does not offer exceptions and advantages through its policies. i see amending these problems as a positive step forward in Social Security reform, a logical one. In my opinion there is little reason to not pass this bill and opposing it only because the Obama administration supports it is an unfair viewpoint of lawmaking. This may appear in the debates as Social Security is a hot button issue but I doubt it will became major news because it is not as well publicized or understood as other issues.
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