On October 30th, the Senate approved the House-passed budget/debt ceiling limit deal (H.R. 1314). President Obama is expected to sign the bill into law this week. This bill avoids a default and government shutdown, but the Medicare premium updates and Social Security benefit changes are quite possibly the most important to the average American.
Let’s address both…
2016 Medicare Part B Premium
An initial Medicare proposal set the standard Part B premium at $159.30/mo (a 52% increase from the 2015 standard Part B premium of $104.90/mo). This was clearly too big of an increase to allow, as Congress worked to limit the Part B premium increase to 14%. This means the likely 2016 standard Part B premium will be right around $120/mo. Higher income Medicare beneficiaries will continue to pay a higher premium, based on their Modified Adjusted Gross Income (MAGI) from two years prior. In 2016, Medicare Part B premiums will be be based on 2014 MAGI.
None of this is official until the President signs the bill into law, but he is expected to approve it. If passed, we expect an official announcement of the Medicare Part B premiums for all income levels in the very near future. This is an important development that could save Medicare beneficiaries significant dollars in 2016.
The End of Social Security “File & Suspend” Strategy
A law passed in 2000 made the “file & suspend” strategy possible. Under this rule, married workers can file for Social Security benefits and then immediately suspend their benefits. This enables a higher earning spouse’s (#1) retirement benefit to increase each year up to age 70, and then a lower earning spouse (#2) can receive up to 50% of #1’s benefit.
This particular strategy can mean significant enhancements to retirement benefits – possibly tens of thousands of dollars over a lifetime. But the Obama administration and some in Congress felt this was an aggressive Social Security claiming strategy mostly benefiting wealthier retirees. Regardless, this bill’s provisions are expected to remove this option just 6-months after it is fully passed.
Since our original post on these topics, additional details have come to light. You will find more information below pertaining to Social Security filing strategies. The updates to the Medicare Part B premiums will be addressed in our next blog post.
Changes to Social Security Filing Strategies
Now that more detail has been released on the Social Security benefit changes, it is clear the changes aren’t as draconian as initially thought. There are many provisions in this bill that one could go into great detail, but this post will simply summarize at a 10,000 ft. level.
These rules are essentially being phased-in over a 4-year period. After 4 years, everyone will be dealing with the same rules. Until then, the Social Security filing rules will be split into 3 sets:
- Set #1: The 6-months immediately following the bill’s enactment. This would span from November 2nd, 2015 through April 30, 2016. The existing rules are basically available during this time frame, assuming one is eligible based on age. File and Suspend, as well as filing under a Restricted Application, are still available during this time frame.
- Set #2: The 4 years following the bill’s enactment. This is available only to those who will turn at least 62 by the end of 2015. File and Suspend will be removed, but filing under a Restricted Application will still be available for these individuals.
- Set #3: After the 4-year period has passed. Everyone follows the same rules at this point. No more File and Suspend, no more Restricted Application. Spousal-only benefits are still available…as long as the higher earning spouse has started his/her own benefits.
Confused yet? Let’s talk about the “File and Suspend” strategy and the “Restricted Application”. These are the critical items that are changing.
Changes to File and Suspend
Very simply…spousal and children benefits are not payable unless the wage earner is receiving Social Security benefits. Because of this, a wife cannot receive a spousal benefit if her husband files and suspends his benefits. He needs to actually be receiving the benefits in order for the spousal benefits can be paid.
Changes to Restricted Application
If you are full retirement age (at least age 66), and you file for benefits, you must take your own benefits. You cannot just file for spousal benefits and not received them from your own work record.
If you are eligible for more benefits based on spousal benefits (because your benefit amount was less than 50% of your higher earning spouse’s benefits), then those will be added to your benefit. But remember, the higher earning spouse must be receiving benefits for the spousal benefit amount to be layered on top of your benefit amount.
There is much more to consider within each of these very brief summaries, but this will at least give you an idea of how this is changing over the next 4 years. With File and Suspend phasing out in 6 months, many people will need to look very carefully at their Social Security planning in the near future. Consult with your financial advisor, especially those with credentials and training through the National Social Security Advisors program. Check out their website at www.nationalsocialsecurityassociation.com.