Social security: the hidden changes in the two-year budget bill.

• Author: Sarenski, Theodore J.
• Position: Bipartisan Budget Act of 2015

More is being written about the Social Security changes in the budget bill passed by Congress and signed by President Barack Obama on Nov. 2, 2015, than any other item contained in the legislation (see the Bipartisan Budget Act of 2015, P.L.T 14-74, or the Act). The result of the changes to Social Security bifurcates the Baby Boomer generation into the haves and the have-nots.

The early Boomers, those born from 1946 to 1953, will be allowed for the most part to take advantage of planning opportunities that have existed since the Senior Citizens' Freedom to Work Act of 2000, P.L. 106-182. The younger cohort of the Boomer generation, those born from 1954 to 1964 and all subsequent generations, will be unable to use the planning strategies that have afforded couples some extra money in their Social Security checks. The rationale used to eliminate these planning strategies was that only the top two quintiles (40%) of earners were taking advantage of them, which meant to Congress that only the well-to-do were benefiting. The top two quintiles are PFP practitioners' clients. Probably the bottom three quintiles would have been just as likely to take advantage of these strategies had they been properly informed of them and would have benefited to a greater extent because they rely on Social Security for a larger portion of their retirement income. So, what happened?

File and Suspend: Still There But Not as Good

A spouse and/or qualifying child is allowed to receive a Social Security benefit on the work record of the other spouse only when the other spouse files for his or her own Social Security benefits. The file-and-suspend strategy allows a worker to file for purposes of allowing his or her spouse and qualifying children to begin collecting Social Security benefits on his or her work record, but the same worker defers collecting his or her own benefit until a later age, accruing an 8% per year added benefit through age 70. File and suspend, as just described, will still be allowed for anyone who is age 66 or older by May 1, 2016-180 days after the bill was signed into law on Nov. 2, 2015.

File and suspend is still part of Social Security, but it is limited to the worker only, for those 66 and younger after that date. After that, the file-and-suspend strategy will allow a worker who has started receiving benefits to suspend those benefits to accrue delayed retirement credits from that point until the worker begins benefits again, up to age 70...