Category Archives: SS in the News

Posts referencing news articles

Social Security Benefits for Same-Sex Married Couples

According to a recent post on the AARP website, “…legally married same-sex couples can get spousal benefits only if they live in one of the 13 states (plus Washington, D.C.) that recognizes those marriages. They may also be eligible if they live in a state that recognizes civil unions or domestic partnerships and grants those partners inheritance rights if one of the partners dies without a will.”

The SSA is working with the Justice Department to finalize rules for those living in states that do not recognize same-sex marriage. If the SSA follows the IRS, benefits will be available to same-sex married couples regardless of state of residence. With the government shutdown, promulgation of these new rules will undoubtedly be delayed.

The AARP website states the following:

“Experts advise retired same-sex couples living in non-recognition states to still file for benefits, to establish the date of their request. In states that don’t recognize same-sex marriages, you’ll be denied. But if the law changes, couples could petition for back benefits based on their claiming date.”

We want to add a word of caution here.  A couple should file for benefits now only if they have decided that their best claiming strategy involves one or both spouses claiming as soon as possible. For many couples, delayed claiming may prove profitable. So, careful thought should be given before filing for benefits now. It may be the wrong thing to do.

It is possible to withdraw a claim once it has been approved. But you must do that within 12 months of the start of benefits. Moreover, it is a one-time option. You may want to save that option for the future.

Need help in figuring out your optimal claiming strategy. We can help with our custom reports. Start here.

Presidential Debate: Romney and Obama on Social Security

During the first Presidential Debate the two candidates were directly asked to address the issue of Social Security.  Here is what they said:

LEHRER: All right? All right. This is segment three, the economy. Entitlements. First — first answer goes to you, two minutes, Mr. President. Do you see a major difference between the two of you on Social Security?

OBAMA: You know, I suspect that, on Social Security, we’ve got a somewhat similar position. Social Security is structurally sound. It’s going to have to be tweaked the way it was by Ronald Reagan and Speaker — Democratic Speaker Tip O’Neill. But it is — the basic structure is sound.

….(digression on Medicare)…..

 When it comes to Social Security, as I said, you don’t need a major structural change in order to make sure that Social Security is there for the future.

LEHRER: We’ll follow up on this.

First, Governor Romney, you have two minutes on Social Security and entitlements.

ROMNEY: Well, Jim, our seniors depend on these programs, and I know anytime we talk about entitlements, people become concerned that something’s going to happen that’s going to change their life for the worse.

And the answer is neither the president nor I are proposing any changes for any current retirees or near retirees, either to Social Security or Medicare. So if you’re 60 or around 60 or older, you don’t need to listen any further.

But for younger people, we need to talk about what changes are going to be occurring. Oh, I just thought about one. And that is, in fact, I was wrong when I said the president isn’t proposing any changes for current retirees. In fact he is on Medicare. On Social Security he’s not.

What can we learn from this exchange?

First, Social Security is not the problem that Medicare is.   While Social Security is underfunded, it can be fixed whereas there is much less agreement on how to fix Medicare.

Secondly, neither candidate is anxious to say that they will lower benefits for people who are 60 or older.  This constituency votes is large numbers, and politicians are loath to change the Social Security benefit structure in a way that will affect them adversely.  This does not mean that younger people will be so lucky.   As we have pointed out in an earlier post, http://www.socialsecuritychoices.com/blog/?p=93, Orszag and Diamond have analyzed the Romney proposals and have calculated that, because Romney’s proposal does not raise taxes, benefits would fall significantly for today’s young people.

“That’s exactly what’s going to happen,” Senator Bernie Sanders (Ind – Vt) said of Social Security being on the proverbial table, “Unless someone of us stops it — and a number of us are working very hard on this — that’s exactly what will happen. Everything being equal, unless we stop it, what will happen is there will be a quote-unquote grand bargain after the election in which the White House, some Democrats will sit down with Republicans, they will move to a chained CPI.”

Chained CPI, or consumer price index, is an alternative measure of calculating inflation that would lessen the cost of living increases for Social Security payments. When the president and Speaker John Boehner (R-Ohio) attempted to craft a deal on the debt ceiling last summer, Obama offered the chained CPI as a concession.

Sanders is one of 29 Senators who have signed a letter to “oppose including Social Security cuts for future or current beneficiaries in any deficit reduction package.” In addition Sanders has supported legislation that would enact the proposal that Obama put forward as a candidate for president in 2008, which entails putting in place a payroll tax on income over $250,000, in the process creating a gap between the current cap of $110,100 and that new level.

Obama’s openness to the tax proposal at the AARP forum prompted Sanders to call The Huffington Post to try and get the president’s commitment to that approach.

“When he says that he’s willing to look at changing the cap, that’s not good enough,” said Sanders. “Four years ago, he told us that, in fact, that was a proper solution, and he was right. I’ve introduced legislation to do just that … I think we’ve got to make sure that we reduce the wiggle room for the president, and he has got to make a very simple statement that, ‘If reelected, I will not cut Social Security.'”

By Monday morning, the Obama campaign had moved slightly in the opposite direction, with top adviser David Axelrod refusing to unveil any specifics about what the president had planned for Social Security reform.

“[T]he approach has to be a balanced one,” Axelrod told MSNBC’s “Morning Joe.” “We’ve had discussions in the past. And the question is, can you raise the cap some? Right now Social Security cuts off at a lower point. Can you raise the cap so people in the upper incomes are paying a little more into the program? And do you adjust the growth of the program? That’s a discussion worth having. But again, we have to approach it in a balanced way. We’re not going to cut our way to prosperity. We’re not going to cut our way to more secure entitlement programs — Social Security and Medicare. We have to have a balance.”

“So what is the president’s proposal?”, asked Time magazine’s Mark Halperin.

“Mark, I’ll tell you what: When you get elected to the United States Senate and sit at that table — this is not the time,” replied Axelrod.

Social Security Nonsense Watch: Beware the Uninformed Expert

Statistics show that delaying Social Security benefits, as opposed to claiming immediately at 62, is becoming more popular. People realize the impact that a well thought out strategy can have on their bottom line, and they seek guidance from experts on how to implement such a strategy. More and more, people have stepped in to try to fill this information vacuum – some more qualified than others. Simply put, Social Security is a complex program. It is perfectly reasonable to expect that an expert on personal finance in general may not have a good understanding of Social Security, which is the main reason why we were able to step in and provide custom analysis to individuals and couples looking to maximize their Social Security benefits.

Recently, the BAM Advisor Network released an article titled ‘Strategies for Optimizing Social Security Benefits.’ The author did a decent job of presenting the basics, but made some key errors on the more complex issues surrounding the Social Security system. First, when discussing spousal benefits, she said:

Consider the case of a couple in which one spouse has not earned enough to qualify for Social Security independently. Under current laws, that spouse may be able to claim 35 to 50 percent of the other spouse’s full benefit when he reaches 62.

Unfortunately, the author left out the important condition that the main beneficiary must file (or file and suspend) for benefits before his spouse can get a benefit on his record. Divorcees are not subject to that condition, and can claim spousal benefits once their ex-spouse turns 62, regardless of whether or not that spouse has filed. This gives them an advantage over married couples in that regard.

However, the major error that the author made came in her discussion of what she called “double dipping” (we usually refer to this as free spousal benefits or a restricted application strategy). She said:

If both spouses worked and had Social Security benefits, couples may be able to take advantage of “double dipping.” Assume a wife is the primary earner, but the husband also earns an income. The wife could claim a spouse’s benefit as early as age 62,  but leave her own (higher) benefit alone until 70, which means she could claim a higher amount because she delayed filing for benefits.

The strategy of a spouse claiming a spousal benefit while delaying his or her own benefit until later is viable, but only once that spouse reaches full retirement age (currently 66). The assertion that this can be done as early as 62 is incorrect, and frankly, could wind up costing a Social Security claimant that attempts to implement that strategy a significant amount of money if the misunderstanding isn’t caught by the SSA. As our married persons’ reports show, the difference between following an optimal strategy and a suboptimal one can be quite large, often exceeding $100,000.

It is absolutely vital that you educate yourself about your Social Security claiming options. In addition to our reports, we offer a great deal of free, easy to understand information on our main website. This article is particularly unfortunate because of its target audience – financial professionals. If you work with a financial advisor, encourage him or her to learn about the intricacies of the Social Security system, or use a resource like SocialSecurityChoices.com, so that misinformation does not get disseminated. After all, the Social Security benefit claiming decision has been described as the most important financial decision one makes, so it’s worth getting it right.

Nonsense Watch: Misinformation about Social Security is Rampant

A recent AARP survey makes clear that the public is unaware of many important aspects of the Social Security system. There are resources available to help individuals with their Social Security claiming decision, such as our custom reports, but the information deficit is not helped by errors made in news stories intended for public consumption.

On this blog, I’ll keep an eye out for stories that misrepresent the Social Security system or make assertions that are be unclear or misleading. I am certainly not implying that these writers are purposefully misleading their readers – they have no incentive to do so. Instead, I’m hoping to make the point that oversimplification often leads to misunderstanding and has the potential to lead people to making costly errors. The rules surrounding Social Security benefits are complex. One simply cannot say what needs to be said in a few bullet points.

CNBC recently published a slide show on ten things you must know about Social Security. Shortly after, InvestorPlace.com published a summary of the slide show. In both stories, there were a number of errors and misleading statements. These errors are more prevalent in the in the InvestorPlace piece, so we’ll examine that below.

3. Start later for bigger benefits. You can claim benefits as early as 62, but if you wait until 65, you will get higher benefits. Waiting even a single year beyond 62 will increase what you get.
4. Waiting past 65. If you can delay claiming benefits until after 65, you will get even more money, up to 8% more annually.

For some reason, both CNBC and InvestorPlace viewed 65 as a watershed year. Since 2002, age 65 has had no significance with respect to Social Security benefits (2002 is the last time age 65 was the full retirement age). Even full retirement age is fairly arbitrary in terms of individual benefits. Delaying benefits past age 62 results in benefit increases to full retirement age and beyond, up until age 70. Full retirement age has important implications for married couples (see file and suspend and free spousal/restricted application) and widows, but in the context of individual benefits it is meaningless.

5. There’s a benefit ceiling. No matter how long you wait, the maximum monthly payment is currently $2,513 per month.

There is a benefit ceiling, but it’s not $2,513. This number is listed by the SSA as the maximum benefit available to individuals claiming at full retirement age (66) in 2012. Individuals who waited to claim until 70 and are claiming now may be entitled to larger monthly benefits than $2,513. My back of the envelope calculations suggest that the largest possible monthly SS check is currently $3,161, based on the maximum full retirement age benefit in 2008 ($2,185) increased by 32% due to delaying retirement and cost of living adjustments between 2008 and today.

9. Marriage has benefits. You can collect half of your spouse’s benefits, if higher than yours, even if you wouldn’t qualify for that level based on your own lifetime earnings.

To CNBC’s credit, they say a little bit more about this issue than InvestorPlace, although they too leave out any mention of the file and suspend strategy and restrictions on spousal benefits. The sentence above from InvestorPlace doesn’t even scratch the surface of the options available to married couples. What’s worse, it suggests that spousal benefits are always half of the spouse’s benefit, and that spousal benefits are unavailable to those with a higher base benefit, both of which are incorrect.

The fact of the matter is that a prudent individual should be devoting a considerable amount of time to building up an understanding of Social Security before they decide to claim benefits. Stories such as these imply that the Social Security claiming decision is a simple one and that little thought is necessary.  In reality, there are numerous paths an individual can take (hundreds for married couples) and the difference between the best and the worst is often over $100,000 in lifetime benefits. We are committed to helping people find the right path, which is why we offer a great deal of free Social Security information as well as custom reports tailored to your individual situation.

 

 

Mitt Romney’s Social Security Proposal

A recent article by Peter Diamond (Nobel Prize 2010) and Peter Orszag (a former director
of the Office of Management and Budget in the Obama administration) once again raises
the question of the best way to bring the Social Security system into long-term financial
balance. This is an important issue for anyone who will depend on Social Security as
a key element of their retirement plans.

The focus of the Diamond and Orszag article is Mitt Romney’s proposal. Diamond and
Orszag point out that a major feature of the Romney proposal is that the entire adjustment
will come from benefit reductions, whereas proposals they have put forward in the past
include some revenue enhancements along with benefit reduction. Thus the Romney
proposal shows what kinds of reductions in benefits would have to occur if benefit
reductions alone were used to balance the system.

As has been the case with other proposals put forth by Republicans for financing
Medicare (such as the Ryan proposal), the cuts in benefits under the Romney proposal would
have little effect on present retirees or people approaching retirement. This is because
of the nature of the adjustments: (1) Raising the full retirement age from 67 to 70
for future beneficiaries, and (2) Adjusting the inflation factor when determining the full
retirement age benefit.

The second of these changes is more difficult to explain. Presently, when Social
Security calculates benefits, they use a formula that adjusts wages that were earned early
in a person’s career for the inflation that occurred over the interim period between the
time the wages were earned and the time when benefits are received. The Romney
plan would reduce this inflation adjustment factor so that benefits would be lower when
a person starts to receive Social Security benefits. Diamond and Orszag claim that this
would reduce benefits for middle class people who retire in 2050 by 32%.

Diamond and Orszag agree that the Social Security system needs to be rebalanced, but
if there are revenue enhancements, such as increasing the maximum wage on which Social
Security taxes are paid, presently $110,100, such large reductions in future benefits
would not be necessary.

More on the Social Security COLA Adjustment

Calculating the Social Security cost-of-living adjustment (COLA) with a 3-month snapshot of CPI change can generate COLAs that are unrepresentative of the actual rate of inflation for a year. For example, the 2008 COLA was 5.8%, based on the inflation in the 3rd quarter of 2008, relative to the 3rd quarter of 2007. In contrast the actual annual inflation in 2008 was 4.0% (based on the  CPI-W).The discrepancy was caused by a temporary run up in the inflation rate in the 3rd quarter due to a temporary jump in oil prices.

Notably, had the 2008 COLA been based on 4th quarter data, the COLA adjustment would have been about 1.3%, rather than 5.8%. Why the difference? Oil prices fell sharply in the 4th quarter of 2008, thereby cutting the overall inflation rate substantially.

Special Treatment for Spouses?

We talk at length on our website about the strategies available to married persons, and it is implied that those strategies are not available to single persons. There are literally thousands of distinct paths that married persons can take with respect to their Social Security retirement benefits, whereas single persons have only one choice to make – when should I claim these benefits?

We do not, however, attempt to quantify the advantages that these strategies bestow on a married couple relative to a pair of single individuals. This topic is interesting in a general sense, but I was inspired to take a closer look at it after reading an article by Richard Thaler, an economist at the University of Chicago, that appeared in The New York Times on February 18. In his article, Dr. Thaler discusses the financial implications of the ongoing same-sex marriage debate. I will leave the debate over same-sex marriage for another blog, but seeing as Dr. Thaler alluded to “spouses get[ting] special treatment from Social Security,” this article is right up our alley.

The application to the same-sex marriage debate is clear – the Social Security Administration does not recognize same-sex marriages. Therefore, although a couple may be legally married in their state, they are treated as two single people with respect to Social Security. This designation denies them spousal benefits and survivor’s benefits, and precludes them from using the strategies available to married persons.

To examine the financial impact of being considered single rather than married, I used our custom Social Security reports and considered the two individuals in the table below.

Person Birth Year Full Retirement Age (FRA) Benefit Life Expectancy
A 1948 $2,250 82
B 1952 $800 82

First, I ran these two individuals through our married persons calculator and found that by utilizing the “free spousal benefit” strategy, these individuals could claim a total of $550,000 in what we at SocialSecurityChoices.com call Social Security Wealth.

Next, I ran the same two individuals though our single persons calculator separately. By filing for retirement benefits at the optimal age given their life expectancies (82 is the median life expectancy for males), these two individuals could claim a total of $443,000 in Social Security Wealth. So, relative to being single, these two individuals would get an extra $107,000 in Social Security Wealth, almost a 25 percent increase, as a married couple. Obviously, the “married advantage” can be larger or smaller based on the individuals in question, but this case study makes clear that the advantages to being married in the eyes of Social Security can be quite significant.