November 6, 2015
Budget Deal Fine Print Axes Benefit for Married Social Security Beneficiaries
by Dave Lindorff
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 begin 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 64, and 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. 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.
Note that there was never any analysis done by the Office of Management and Budget or the Social Security Administration of the workings of this so-called “loophole” in the Social Security law — no examination into who was making use of its provision. In fact, when I called Social Security’s press office this week to ask how many people a year have been availing themselves of the file-and-suspend option, and how much money was being paid out in benefits through that procedure, I was told “We don’t have that information.” That’s pretty amazing considering the reams of data that the Social Security Administration keeps on its program, how it is used, who gets benefits, and how much they receive.
The offer by the Obama administration to toss out file-and-suspend was made not as a policy decision, but rather as an offering to Republicans in Congress who were holding the federal budget hostage, threatening to allow the government to go into default on its debt on November 3 if a budget deal was not struck.
Because of that give-away by the White House in its negotiations with Republicans in the House and Senate, as many as $9 billion a year in benefits may have been taken away from retired couples going forward. But it’s worse than that: to the extent that lower income couples are forced by financial circumstances to take their retirement benefits earlier, at 66, 67, 68 or 69, instead of waiting until they are 70, it will mean lower benefit checks for countless more millions.
Social Security’s enemies make the argument that file-and-suspend was a kind of “double-dipping” that was allowing one group of retirees — married couples — to snare some extra income unavailable to single retirees, and that this was somehow sapping the Trust Fund and making things harder for everyone, given that without any action to shore up funding, the Trust Fund is slated to “run out” in 2032. But first of all, the only reason funds would “run out” would be because Congress is failing to act now to take small steps, such as eliminating the current cap on income subject to Social Security taxation (currently set at $118,500 a year), so that all income is taxed.
And secondly, there are many ways that the Social Security program provides benefits to some more than others. For example, the program has always provided “orphans” benefits to children under 18 if one parent dies. It also provides optional “survivor” benefits to a widowed spouse, who can opt to collect an amount equal to the deceased spouse’s benefits if greater than his or her own benefit amount.
Serial divorced persons have an added benefit, namely that they can choose which ex’s social security spousal or survivor’s benefit account they want to draw on, if higher than their own account, and they can even draw on one, and then if another ex dies later, offering a higher survivor benefit, they can switch.
In other words, the simple fact that a benefit — like file-and-suspend — is available to some Social Security beneficiaries and not to others is hardly a justification for eliminating it.
There are several threats inherent in this latest rule change. The first is that it sets a precedent of taking away a long-standing benefit that is significantly helping many Social Security recipients right now to get by, and even more important, to hold off on pulling the trigger on collecting their own Social Security benefits.
Secondly, it sets a precedent of Democrats, who claim to want to support the majority public desire for expanded, not reduced Social Security benefits, instead caving in and supporting cuts in benefits in the face of determined efforts by Republicans to undermine and gut this most popular of New Deal programs.
The silence from supposedly progressive Democrats is deafening. Even Democratic presidential aspirant Sen. Bernie Sanders, who has been hammering the podium in the Senate and on the stump calling for expanding of Social Security benefits, not cuts in the program, has uttered not a word of criticism of this deceptive rule change, though it is a clear cut in program benefits.
I have made three attempts, one last week, and three this week, to his Senate press office asking for Sanders’ position on the elimination of the file-and-suspend strategy, and have received no response, even to say there is no comment. I would say that the deafening silence from the founder of the Senate’s supposed “Defend Social Security Caucus,” says it all in terms of his commitment to protecting the nation’s retirement scheme from attack.
So much for progressives defending Social Security from the corporatist horde in Congress (and the White House) seeking to weaken and ultimately destroy the program.
It would appear that only a militant mass movement in the streets is going to put a stop to this death by a thousand cuts.
Full disclosure: As a 66 year old, I have been expecting to, and ultimately will be able to take advantage of the file-and-suspend strategy, since I will be able to implement it this January, and the actual elimination or File-and-Suspend spousal benefits will only take effect on April 1, when the new Budget Law takes effect.