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The recent bi-partisan Budget Bill included significant changes which previously permitted filing strategies which allowed married and divorced couples an opportunity to maximize their lifetime benefits from social security. These legislative changes to social security have often been described as "closing loopholes for the rich" but, upon closer examination, these changes mostly appear to hurt the middle class and women. As far as I can tell, the rich are still rich and clearly not impacted by these social security changes in any material way.
These special filing strategies were originally introduced into legislation by President Clinton in the "Senior Citizens Freedom To Work Act of 2000". They allowed workers a way to receive some benefits, through spousal and ex-spousal filing strategies, while deferring the start of their own benefits to age 70, in order maximize the value of their own benefits.
These filing strategies were especially important and valuable to middle class workers and women (specifically, wives, ex-wives and widows). This is because it gave these two groups of people an opportunity to collect some benefits while they continued to work (in order to increase their savings for retirement) and also to maximize their own eligible social security benefits by delaying the start of these benefits to as late as age 70.
Here's an example of what a married couple could have done under the old rules. Let's assume that a married couple reached age 66 together and decided to continue to work until age 70 in order to increase the value of their social security benefit by 32% (an 8% increase per year from age 66-70) by delaying the start of their benefit until age 70. They could have taken advantage of a filing strategy called "file and suspend" which allowed one spouse to file for benefits but delay actual receipt of these benefits until age 70. Since, say the husband, filed and suspended his benefit, his wife would be eligible to collect 50% of the value of his benefit until age 70 by filing a "restricted application" for spousal benefits. Once they each turned age 70 they would both start their own benefits, which had increased in value by 32% from age 66-70.
This filing strategy afforded this couple 4 major benefits:
1. It allowed them to maximize their own social security benefits by delaying the start of benefits to age 70.
2. It allowed the lower earning spouse (typically the wife, but not always) to receive spousal benefits from age 66-70 while delaying the start of her own benefit to age 70, in order to increase the value of her own benefit.
3. It allowed the higher earning spouse (typically the husband) to maximize the "survivor benefit" for his wife by delaying the start of his own benefit to age 70, thereby maximizing the value of his benefit which she would receive if he pre-deceased her.
4. It allowed them to continue to work and save for retirement while still receiving some social security benefits (i.e. the spousal benefit) from age 66-70.
Under the new Budget Bill, however, many of these benefits are either severely diminished or eliminated. This is because the "file and suspend" option has been eliminated except for a short 6 month window. If you are age 66 or older by May 1, 2016 you may still be eligible for this filing option. In addition, the "file and restrict" option has also been eliminated except for individuals who are age 62 or older by December 31, 2015. (If you qualify under either of these deadlines it is imperative that you seek the advice of a social security specialist to determine what you may still be eligible for and to determine your optimal filing strategies before these deadlines pass).
In summary, other than those eligible to retain benefits under the transition rules, the new rules are most likely to result in a reduction in benefits for spouses (mostly the wife), ex-spouses (mostly the ex-wife), widows and middle class couples (married or divorced) who are, generally speaking, already struggling to meet the challenges of financing what may be a 20-30 retirement.
With so many other options available to "fix" social security, it's perplexing that the impact of these new social security rules on the middle class and women, in particular, were not more thoroughly researched and debated before rushing the new legislation through. "Closing loopholes for the rich" may be an attractive "sound bite" for some politicians but it doesn't seem to reflect the true impact of the recent legislative changes to social security.