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The new budget bill could reduce the lifetime benefits of millions of Americans by tens of thousands if not hundreds of th...

Column: Congress is pulling the rug out from people’s retirement decisions

Update: In late 2015, Congress approved the  Social Security rule changes Larry Kotlikoff warned against in this Making Sen$e column. The so-called file-and-suspend strategy was done away with.

Kotlikoff provides further advice on how to adjust to the new rules in 12 secrets to maximizing your Social Security benefits and in the book “Get What’s Yours: the Secrets to Maxing Out Your Social Security,” authored by Kotlikoff, Making Sen$e Medicare columnist Phil Moeller and PBS NewsHour economics correspondent Paul Solman.

Stay up to date on Social Security rules, which are complicated and change often by reading subsequent “Ask Larry” columns.

On Tuesday, I described the pending vast changes to Social Security rules included in the House 2015 Budget, which is being rushed through Congress without any hearings or time for public comment.

The bill will reduce the lifetime benefits of millions of Americans by tens of thousands if not hundreds of thousands of dollars. It will do so, in large part, by inducing people to take their retirement benefits far too early in order make up for the loss of spousal, divorce(e) spousal, child, disabled child, excess widow(er) and excess divorce(e) widow(er) benefits.

The bill not only cuts benefits for people who are about to make their Social Security collecting decisions, but it also stops benefits that people are already collecting. This is an absolutely terrible precedent for Congress (and the administration, which is fully on board) to make. No retiree will ever again be able to feel their Social Security benefits are safe from some backroom, midnight, rushed change in rules that are designed to meet some budget target or accommodate some politician’s whims.

Here’s an email I received yesterday from a gentleman whose first name is Steven.

I read with alarm your above-referenced article regarding changes to Social Security under the House Budget Bill. Three years ago, my wife and I decided that our best option for collecting Social Security benefits was for me to file and suspend at age 66. I’ll be 66 next year. So needless to say, your article is of great concern to us.

My understanding is that this has not yet been voted on, but that the Obama administration has a deal with Congress on the budget. Is Section 831 of the House bill part of that deal? Is there still a chance to remove or reform this section?

Thanks for your assistance on this and for your informative article.

I received this comment not too long afterwards from Dennis.

This is why we cannot trust a Republican Congress with our retirement security. I am currently relying on this benefit after turning 66 and working part time to have a large enough Social Security check to retire on at 70.

And I received this shortly thereafter from Mark.

First, thanks for your article today in Forbes. I am a subscriber to ESPlanner and of Maximize My Social Security. Obviously, my wife and I have really appreciated your advice. The way this is being done is horrible. I am 65, and my wife is 61. We had been planning our retirement for years with this strategy in mind, thanks to you. Now, because she is a few months shy of turning 62 this year, she loses all of it, while arbitrarily, a spouse who just turned 62 gets everything. I hope you will continue to speak out not only against the effect on those who are getting the benefits, but also against the suddenness of imposing these rules on people at or near retirement. I think this outrageous, and if it weren’t for you, I’m not even sure anyone would have made this an issue. Thank you.

This is illustrative of the huge problem with abruptly changing Social Security benefit rules. People have been making their retirement plans for years based on what they expect to receive in Social Security benefits. They may have quit their jobs early based on their expectation of receiving the benefits they were promised. Now, Congress and the administration are changing the rules on them with no advanced warning.

My column on Monday, however, may have done some small good to correct one of the bill’s most egregious provisions! The House Budget bill passed Wednesday was, apparently, amended so that spouses and children now collecting benefits on the work records of a husband, wife or parent who filed and suspended can continue to do so rather than have their benefits stop six months after the bill’s passage. Also, those who file and suspend in the six months after the bill is enacted will be grandfathered with respect to providing auxiliary benefits.

So anyone who is planning on filing and suspending to get their children or spouses full spousal benefits needs to do so IN THE NEXT SIX MONTHS. This pertains to anyone now over full retirement age and anyone who will reach full retirement age in the next six months.

Note also, that your spouse, who wishes to collect a spousal benefit on your work record while your retirement benefit is in suspension can be any age and qualify. But here’s the gotcha. If she turns age 62 in 2016 or thereafter, she will be deemed and forced to take both her own retirement benefit and spousal benefit at the same time and only receive what is approximately the larger of the two benefits.

Morton: Your admonition that people should use extreme caution in making Social Security collection decisions in your message to Maximize My Social Security subscribers provoked an interesting discussion in my household. Here is our situation:

I will be 67 in January 2016. I recently applied to take my Social Security benefits after my birthday and was notified today that I will begin receiving $2,727 in February 2016.

My wife Sally will turn 66 in January 2016. Our strategy, using your software, was that she would apply for her benefits and suspend them until she reaches 70. She was also planning to apply for spousal benefits under my name. The question is: Is there any risk to her going ahead now and filing and suspending? Is there any risk for her to apply for spousal benefits?

Your PBS NewsHour story and other published articles on these pending changes suggested two things that lead me to believe that she should indeed go ahead as planned. First, the change in the deeming only seems to apply to those who are now younger than 62. My wife is not in that category. Secondly, it appears there is an amendment that would grandfather in people who are now in the process of applying for benefits. This suggests that it may be advantageous for her to go ahead as planned.

Since we are not income-constrained, and she is planning on continuing to work anyway, it seems that the worst that could happen is that she would become ineligible to receive her spousal benefits. Would you advise her to go ahead as planned or wait until the legislation is finalized?

Larry Kotlikoff: You are grandfathered in for six months, so in December have your wife go into the office (she should make the appointment now since the office will be swamped) and tell them she wants to file a restricted application for her spousal benefit as of the day she turns 66. You should go in as well and file and suspend. Then take your retirement benefit at 70.  You are very lucky.  You just got under the bar.

Jean: So it’s happening, how dare they! But I do have a question. I can’t seem to find a straight answer to when this will go into effect, and if those already over 66 can still file and suspend and have their spouse get spousal benefits at 66. I’ve read a number of articles on this, but I’m trusting YOU to know. Some say it will have an immediate effect, some say it doesn’t effect those who have already turned 66, two articles said two years from now and others say in six months

To summarize my situation, I turned 66 in May 2015.  My husband will turn 66 in August 2016. I have not yet filed and suspended. I was waiting until he turned 66 to maximize my benefits in case of death.

As others have said, I used this strategy to carefully plan retirement, and it seems very unfair to zap into place the new policy. Thanks for all you do. Great article this past Monday, but so unfair that you had to write about this.

Larry Kotlikoff: You should file and suspend right away. You will be grandfathered in. Please read this update on the budget passed by the House.

Pat: Unfortunately, knowledge of what Congress was doing came too late to prevent my husband and me from irrevocably setting some “asset” wheels in motion.  We are now locked into that path and will not have access to the spousal benefits we anticipated receiving. Before we panic and pull out all the stops to come up with a Plan B, please confirm if I am understanding your summary correctly. Are spouses over 66 no longer able to collect a full spousal benefit on the record of their disabled spouse?

I am shocked that the media hasn’t given this any airtime, especially with how many people are affected. I hope Congress comes up with a better alternative.

Larry Kotlikoff: Depending on your age, you could be even one day too young, and thus, one of you may not be able to receive a full spousal benefit as planned.  I, too, am totally shocked by this bill and the failure of the media to scream foul. I spoke today to a group of roughly 200 middle-class people. I estimate that this bill will cost them, on average, $35,000 each and a lot more if they are induced to take their own retirement benefits early.