Retirement 2016: Four Big Changes That Could Reshape Your Savings Plan

December 7, 2015

retirement-planning-Social-SecurityIn the rush to keep the government up and running, both sides of Congress crafted a massive budget bill in late 2015 that included funding for training, research and education. It also included a few massive Social Security changes that, to understand them, might require your own training, research and education.

After looking over the final bill and seeing what passed and what didn't, here, in plain language, are the changes that are likely to be the most relevant to your retirement saving and spending:

Restricted application—claiming Social Security 2X is no longer an option. If you turn 62 in 2016 or later, you no longer have the option of collecting spousal Social Security benefits while your own benefits accrue the yearly 8% increase (your reward for waiting until later to collect your Social Security benefits). If you plan on using this technique, the window is closing. You have until late April 2016 to take action. If you're already using restricted application, carry on—for now.

File-and-suspend/suspended payment—no more toggling benefits. If you've never heard of file-and-suspend, here's how it works: At age 62, the family breadwinner applies for Social Security and then immediately suspends their application. The lesser-earning spouse immediately files for spousal benefits based on the breadwinner's benefits, getting up to half of what the breadwinner would make if the breadwinner collected at 62 (instead of filing and suspending). Meanwhile, the breadwinner's benefits accrue the annual 8% increase, and the spouse's benefits collect that extra 8% as well. When each spouse turns 70 and they decide to collect, they get as much as 32% more in benefits. Everybody wins (except, perhaps, the Social Security Administration).

From now on, if you're the breadwinner, once you file for benefits, your spouse files as well. Once you suspend, your spouse suspends as well. Toggling benefits to maximize the amount you collect is no longer allowed, unless you suspend payment by late April 2016 or you're already using this technique.

COLA—no increase in 2016. Since 1973, the Social Security Administration has generally offered a cost-of-living adjustment (COLA) increase to those collecting benefits, based on inflation. Not this year. This will be the third time since 2010 that COLA benefits have been suspended, which means no boost in benefits or payments in 2016.

Medicare Part B—some people will pay more in premiums. Leading up to the passage of the budget act, many people expected a Medicare Part B increase of as much as 50%. Not so. The government has kept costs down, and most people with Medicare Part B will pay the same monthly amount—roughly $105—in 2016. Most new subscribers will pay approximately $122 per month, though high earners will pay more.

Like most financial trends, Social Security and Medicare rules often change based on the state of the economy. The gravity of these changes is still unknown, but your financial planner or wealth manager may help you offset these new rules.