The budget bill signed last week by President Obama included perhaps the most significant change in Social Security benefits since 1983. Back then, Federal Reserve chairman Alan Greenspan led public hearings that helped usher in key reforms. Last week’s changes, which ended two major Social Security claiming strategies for married couples, occurred with virtually no public government review or hearings.
All of which has left a lot of pre-retirees scrambling. To help you make sense of these changes, and to help you decide how to respond, here are five key points to know:
Married couples will have fewer claiming options.
By Friday, April 29, 2016—about six months after the bill’s signing—people who have not yet filed for Social Security benefits will no longer be able to use the program’s “file and suspend” rule. This claiming strategy has permitted one member of a married couple to file for Social Security, thereby enabling a husband or wife to file for a spousal benefit. (Or other family members to file for ancillary benefits.) The spouse, meanwhile, could suspend his or her own retirement benefit, which then could grow due to delayed retirement credits by 8% a year.
The changes also will end the ability of anyone born in 1954 or later to file what’s called a restricted application and collect only a spousal benefit while letting their own retirement benefits rise by 8% a year for up to four years, until age 70. Instead, filing for spousal benefits will be deemed by Social Security to also trigger a person’s own retirement benefit. The agency will pay only an amount that is roughly equal to the greater of the two benefits. Right now, deeming only applies to benefits claimed before age 66, but the new law will eventually extend it to older filers as well.
There are a few exceptions, though time is running out for some.
Depending on your age, you may have a window of opportunity. First, a person at least age 66 can continue to file and suspend until April 29, 2016. By doing so, your spouse and qualifying family members may be eligible to receive benefits after the law becomes effective. Plus you can continue to receive delayed retirement credits for up to four years. Clearly, if you are 66 or older and intend to do this, you should start the process soon.
Second, people who are 62 or older as of the end of this year are grandfathered and will not be subject to the expanded deeming rules. This means that if you filed (or filed and suspended) for your own retirement benefits (or do so in the next six months), your spouse can still file a restricted application for just spousal benefits. But to qualify for this exception, your spouse will need to be at least 62 by the end of 2015.
Deeming will not apply to a widow or widower, who will still be able to claim a survivor benefit while deferring individual retirement benefits and letting them rise in value. This assumes the survivor has not already filed for individual retirement benefits. It also assumes that benefit would be larger than the survivor benefit—otherwise, there would be no reason to defer and later switch.
What happens after the six months are up?
After the new rules take effect, if you voluntarily suspend your benefit (which now can only be done after reaching age 66) you will not be able to claim benefits based on anyone else’s earnings record and no one will be able to claim benefits based on your record. This will have a significant effect on decisions people need to make about when to claim their benefits. It also will sharply reduce the ability to claim ancillary benefits for spouses, dependent children and others.
The changes also will end the option to suspend your benefits and later claim a cumulative lump-sum, or retroactive payment, equal to all of your suspended benefits. If you suspend your benefits before the end of April, however, you can still un-suspend them and collect retroactive payments.
For those who have already suspended benefits, you can get retroactive payments for up to one day shy of four years. If you don’t claim a retroactive payment, you can continue to earn delayed retirement credits for up to four years.
Why did the Social Security changes happen so suddenly?
Good question. Instead of holding a public debate, Congress tacked these changes onto an emergency bill to avoid a U.S. debt default, bail out Medicare from enormous premium increases next year, and extend the life of Social Security’s disability insurance program, which had been scheduled to run out of money in less than a year. There was no public evaluation or discussion of these changes, and there are still no publicly identified authors of these reforms.
Are online tools available to help me sort out a new claiming strategy?
Many online advice tools are still being updated. Two leading providers of Social Security claiming software, Maximize My Social Security and Social Security Solutions, have posted partial explanations of the changes and urged people to proceed carefully before making any new claiming decisions.
Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at email@example.com or @PhilMoeller on Twitter.
Read next: The Veteran's Guide to Financial Success