Budget Deal Fine Print Axes Benefit for Married Social Security Beneficiaries
In what might be an opening salvo in the undermining of Social Security benefits by a coalition of Republicans in Congress, President Obama, and many corporatist Congressional Democrats, the new “Bipartisan Budget Agreement of 2015” has eliminated a provision in the Social Security Act which, since 2000, has allowed older American married couples who have both reached age 66 to have one spouse receive spousal benefits on the other’s account, helping both to hold off until 70 before claiming their own maximum monthly benefit.
Let me explain. In 2000, Congress amended the Social Security Act of 1936 to allow one spouse in a married couple to file for their Social Security at the so-called Full Retirement Age of 66, and then suspend any payment of benefits out until they reached the maximum benefit age of 70. By doing this, the act, as amended, allowed the other spouse, if also age 66 or older, to begin collecting spousal benefits on the first spouse’s suspended account. Spousal benefits at age 66 are 50% of whatever the suspending spouse would be receiving if benefits had been started at that age.
For example, if a wife who, at age 66, could retire and begin receiving $2000 a month on her account, chose to file and then suspend benefits, her husband, if also age 66, under the 2000 amendment, immediately begins receiving $1000 a month in spousal benefits without having to file for his own benefits. What this meant was that for the next four years this couple, often by that time both retired, could count on receiving (in constant dollars, not counting for upward inflation adjustments) about $12,000 a year in Social Security benefits, which could help many such people hang on until age 70 before having to file for Social Security benefits on their own accounts. Since waiting four years past 66 increases those monthly benefit checks by 32%, the strategy was enabling such couples to boost their combined benefits from 70 until death by a substantial sum.
Taking the above example, and assuming that both husband and wife were eligible to receive benefits of $2000 a month if they filed for benefits at age 66, and $2640 if they waited until age 70, and assuming they both could expect to live to age 80, the difference in their income in retirement between just taking benefits at 66, and using the file-and-suspend option and taking benefits at 70 (again in constant dollars) would be $672,000 and 681,6000. That’s almost $10,000 in extra income in retirement for an average lifespan. The difference, of course, grows significantly if the couple or one member of the couple, lives much longer. For example, if one spouse died at 80, and the other lived to 90, the difference in income that surviving spouse would receive between the options of both filing at 66, and instead using file-and-suspend and both starting benefits at 70, would be $76,800. Double that for a couple living to age ninety to an extra $153,600 in total benefits over their retired lives.
This was all taken away by the budget agreement’s sleight-of-hand, as offered up by Obama for the cutting block. And incidentally, it isn’t just married couples that have been hurt. The ending of the file-and-suspend strategy also applied to filing-and-suspending by a widowed spouse to allow his or her dependent children to receive benefits while holding off on collecting benefits his or herself until age 70.