When it comes to government programs such as Social Security, the writer Franz Kafka probably put it best: "The chains of tormented mankind are made out of red tape."
Social Security has 2,728 rules governing its benefits, and each of these rules has exceptions. It's a byzantine nightmare, and for retirees, the news is about to get a lot worse.
Congress recently eliminated a popular Social Security maneuver that married couples have used since 2000 to receive tens of thousands of dollars in additional benefit payments.
Known as "file and suspend," the claiming strategy enabled one spouse to get spousal benefits while the other delayed receiving payments. But as of April 29, 2016, this strategy is no longer allowed. As you put together your long-term wealth-building plan, you need to know the details of this rule change.
There is no other Social Security strategy you can adopt to retain the added retirement income generated by file and suspend. Consequently, thousands of married couples who made the strategy an integral part of their retirement planning are out of luck.
The new rules go into effect May 1, 2016. That leaves a grace period during which married couples may still file and suspend as long as one partner is at least 66 years old by May 1.
Under the new rules, after May 1 your spouse is compelled to collect benefits for you to claim spousal benefits. You'll get whichever is higher, your own benefit amount or the spousal benefit amount. Moreover, unless you turned 62 before the end of 2015, you're no longer allowed to switch from a spousal benefit to your own higher benefit at a later date.
For a two-earner couple, both born after January 1, 1954, these profitable switching maneuvers are eliminated.
Congress killed the benefit as part of a larger campaign to slash costs in the Social Security program. Increasing numbers of people were becoming aware of the benefit, as financial planners raised awareness about it. File and suspend was an unintended consequence of the 2000 Senior Citizens' Freedom to Work Act, designed to motivate people to keep working after reaching full retirement age. Indeed, trends show that growing ranks of retirees are setting up shop as consultants and home-based entrepreneurs.
The Freedom to Work Act allowed people to work without encountering reductions in their Social Security benefits predicated on the amount of money they earned. The Obama administration wanted to eliminate the strategies, because they benefited mostly wealthier couples who could afford to delay receiving Social Security benefits.
However, you could argue that the strategies didn't just dole out free money to richer people, because one or both spouses contributed to the Social Security fund over the years. Under the now eliminated strategies, they simply received some of the money earlier and got more of it back over the long run than if they each filed for their own benefits at full retirement age.
Higher-income people have been more likely to take advantage of these strategies, but the new rules apply to everyone equally. In this situation, Uncle Sam has been egalitarian: retirees of all income levels will get hurt.
For additional advice on how to cope with the elimination of this Social Security benefit, consider consulting the financial advisors at Charles Schwab (SCHW - Get Report) , TD Ameritrade (AMTD - Get Report) , or T. Rowe Price (TROW - Get Report) .
As we've just explained, you can't count on Social Security to get you through retirement. Are you making the right investment moves for your retirement, or are you blowing it by making all-too-common money mistakes? There are crucial steps that you should be taking now, to build wealth over the long haul. To find out whether you'll have enough money in your later years, download our free report: Your Ultimate Retirement Guide.