Social Security Changes Sting Women

Mary Beth Franklin          Mary Beth Franklin

Social Security benefits play a critical role in retirement income security for many American women. Given their longer life expectancy and the increasing divorce rate among older couples, women are more likely to spend their final years alone.

In 2013, Social Security represented nearly half of all income for unmarried women, including widows age 65 or older, according to the Social Security Administration. More than 80% of retired women currently collecting Social Security took benefits early, locking in a lifetime of lower payments, according to a new Nationwide Retirement Institute survey. And nearly a quarter of them said if they could do it over again, they would have held out for a bigger benefit.

“Women in general have to be prepared to live longer and often have to do so with less savings,” said Shawn Britt, director of advanced consulting for Nationwide Financial Services. “This makes maximizing Social Security benefits extremely important.”

But new rules limiting Social Security claiming strategies in 2016 and beyond could make it more difficult for many women to maximize their benefits in the future.

One of the new restrictions on spousal benefits affects married women and divorced spouses. Another new rule will eliminate the ability of single people to request a lump sum payout of benefits. But widowed individuals who are entitled to both retirement benefits on their own earnings record and a benefit as a surviving spouse will continue to have the option to claim one type of benefit first and switch to the other later if it would result in a bigger benefit.

Currently, married or qualified divorced spouses who are entitled to both their own retirement benefits and spousal benefits can elect to collect just spousal benefits when they wait until their full retirement age of 66 to claim Social Security. A spousal benefit is worth half of their mate's or ex-mate's full retirement age benefit amount. In the meantime, their own retirement benefit would accrue delayed retirement credits worth 8% per year up to age 70, when they can switch to their own larger benefit.

But under new Social Security rules included in the Bipartisan Budget Act of 2015, the ability to temporarily claim just spousal benefits is being phased out.

Married people or divorced spouses who are 62 or older by the end of 2015 will retain the right to claim only spousal benefits at age 66, assuming their spouse has filed for benefits. Divorced spouses who were married at least 10 years and currently are single are independently entitled to Social Security benefits on an ex's earnings record, even if that ex has not yet claimed benefits, as long as the couple has been divorced at least two years.

But married individuals or divorced spouses younger than 62 by the end of 2015 will no longer be able to collect only spousal benefits. When they claim Social Security they will be paid the higher of their two benefits.

Another major rule change involves the claiming strategy known as “file and suspend” that allows a worker who is full retirement age or older to claim Social Security and immediately suspend his or her benefits. Currently, filing for benefits can trigger auxiliary benefits for a spouse or minor dependent child while the worker's own benefit continues to grow by 8% per year up to age 70.

Those 66 or older can still request to file and suspend their benefits under existing rules by April 30, 2016. But new requests to file and suspend on or after May 1 will be subject to new rules that prohibit any benefits being paid to family members while a worker's benefit is suspended.