This Major Social Security Rule Ends in 2024 – Officially Confirmed

Social Security has long been a lifeline for retirees, and one key element was the spousal benefits provision, which allowed spouses to maximize their payouts by alternating between their benefits and their spouse’s benefits. However, for people born after January 1, 1954, that rule ended this year. If you turned 70 on January 1, 2024, the old provision no longer applies to you.

For many couples, this rule allowed them to claim one benefit, delay the other, and maximize their overall retirement income. But with these changes, it’s essential to rethink your strategy to ensure you make the most of your spousal benefits moving forward.

Review

With the changes made by the Bipartisan Budget Act of 2015, the old rule of maximizing spousal benefits is no longer available for those who turned 62 after January 1, 2016. Therefore, you’ll need to be more strategic when claiming your spousal benefits.

Here are three crucial things you should keep in mind:

Planning

Maximizing your Social Security benefits starts with knowing what you’re entitled to. The Social Security Administration offers tools to help you estimate your benefits, and it’s wise to register for an online account to keep track of these estimates.

When a married couple claims benefits, the lower earner receives either their own benefit or 50% of the higher earner’s full retirement benefit, whichever is greater. For some couples, this means delaying the lower earner’s benefits and using the higher earner’s to maximize the payout. It’s important to discuss with your spouse what strategy works best for you both based on your expected longevity, work history, and financial needs.

Timing

Timing is everything with Social Security benefits. Although you can claim benefits as early as age 62, your benefit amount will be reduced by 30%. For instance, if you’re entitled to $2,000 at full retirement age (67), your monthly benefit would be reduced to just $1,400 if you claim at 62. This reduction will also impact your spouse, as their spousal benefit is linked to your full retirement age benefit.

In other words, if you claim early, both your and your spouse’s benefits will be permanently reduced. If possible, it’s generally a good idea to avoid claiming Social Security benefits before your full retirement age to avoid these reductions.

Delaying

While delaying Social Security benefits until age 70 results in a higher benefit for the primary earner, this doesn’t always apply to the spousal benefit. Spouses are only eligible to receive 50% of the primary earner’s benefit at their full retirement age (FRA), regardless of whether the primary earner delays benefits past FRA.

In other words, even if your spouse waits until age 70 to claim benefits and earns a higher payout, your spousal benefit will still be based on their full retirement benefit, not the increased amount they receive by delaying. Therefore, delaying until age 70 won’t always benefit the lower-earning spouse.

Taxes

Another important factor when planning your Social Security benefits is knowing how taxes might affect your income in retirement. If you plan to move after retirement, you might want to consider states that don’t tax Social Security benefits. Here are a few options:

State	State Sales Tax	State Social Security Tax	Property Tax Rate	Income Tax Rate for Seniors
Delaware	0%	None	0.61%	2.2% – 6.6%
New Hampshire	0%	None	1.93%	4% (on interest and dividends)
Wyoming	5.36%	None	0.56%	0%

These states offer attractive tax advantages for retirees, with no state tax on Social Security benefits. However, it’s important to consider other taxes, such as property or income taxes, before making a move.

For instance, New Hampshire has no income tax but imposes a 4% tax on interest and dividends, which might impact retirees with substantial investment income. Wyoming, with no income tax and a low property tax rate, might be a better option for some retirees.

It’s important to weigh all your options and know how local taxes could impact your overall retirement income.

In summary, the Social Security spousal benefit changes have altered the landscape for retirees, especially those born after January 1, 1954. With the old provision gone, it’s crucial to plan ahead, carefully time your benefit claims, and investigate tax-friendly states to maximize your retirement income. By reviewing your benefits and making informed decisions, you can still make the most of your Social Security in this new era.

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