Monthly Archives: June 2012

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, 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.

Social Security COLA Watch: June 2012

New data have been released. Check here for more!

The CPI-W for May 2012 was released this morning by the Bureau of Labor Statistics, and the news is not good for Social Security recipients hoping for a raise leading into next year. The CPI-W index fell from 227.012 to 226.600, which is 1.5% higher than the third quarter 2011 average (the baseline for COLA calculations). The decline is due entirely to falling energy prices (food prices were unchanged in May, and all items excluding food and energy increased slightly.

The May decline illustrates the uncertainty in trying to project the Social Security COLA. Nevertheless, we’ll keep a sharp eye on the numbers and update you as new data become available. CPI-W for June will be available in mid-July. Stay tuned!

How Do I Maximize My Social Security Benefits?

There are two answers to the question expressed in the title.

First, if you are interested in maximizing your monthly Social Security retirement benefits, all you need to do is wait until age 70 to claim your benefits.  If you are looking to maximize your monthly spousal benefits, then you should wait until your full retirement age to claim them.  (Spouse benefits include ex-spouse and surviving spouse benefits.)

Second, if you are seeking to maximize your lifetime Social Security retirement or spouse benefits, then answering this question can be vastly more complicated than answering the first one.

Let’s consider married couples, the group that faces the most difficulty in finding the claiming strategy that maximizes lifetime Social Security benefits: they face literally hundreds of possible claiming options. At  we have found the following factors to be the principal underlying determinants of optimal claiming strategies for married couples:

  1. Length of planning horizon (e.g., do you and your spouse have a relatively short life expectancy because of poor health; or, do you expect to live well into your 80s or even 90s?);
  2. The discount rate for converting future values into present value equivalents (for the details about this factor, see our discussion on the main website).
  3. The ratio of the wife’s primary insurance amount, or PIA (that is, retirement benefit at full retirement age) to the husband’s PIA;
  4. The age differences between the husband and wife.

For ex-spouses and widow(er)s, determinants (3) and (4) above are irrelevant because only one spouse is directly involved in claiming decisions for this group.  The optimal claiming determinants for these two groups include (1) and (2) from above, plus (3′)

3’.  The ratio of the person’s PIA to their maximum ex-spouse or widow(er)’s  benefit.

For singles, the problem is much simpler in that the optimal choice depends only on factors (1) and (2) above.

If you need help in solving your claiming puzzle, check out our separate benefit calculators for married couples, singles, and widow(er)s. (The calculator for ex-spouses is under development and should be available soon.)

A Misleading Tool: Social Security Break-Even Calculator

Those thinking about whether to claim their Social Security benefits now or later often ask the following question: “If I delay claiming and give up benefits now in return for greater benefits later on, how many years must I wait to get those forgone benefits back? This is known as the “Social Security breakeven time period” question.

In this post, I discuss why concentrating on this breakeven question alone may well lead to poor decisions about one’s claiming strategy. Notably, the Social Security Administration agrees with my view. For some years, the SSA website had a Social Security break-even time-period calculator. It was removed about three years ago because the SSA concluded the information generated by the calculator was misleading many people into making poor claiming decisions.

Here is a simple example of how a Social Security breakeven calculator works. Suppose that Don, a single person, could get $9,000 a year in Social Security benefits if he took them at age 62. If he waited one year, his benefits would go up to $9,600. So, he gives up $9,000 for a year in order to get an extra $600 a year for the rest of his life. The breakeven period for Don is 15 years (= $9,000/$600), or when he reaches age 77. Had I discounted future benefits to account for the time value of money, the breakeven age could be several years past age 77.

Delayed claiming is a form of investment: you give up money today in return for more money in the future. Wise investors consider at least three factors when contemplating an investment: 1) how risky is the investment? 2) what is the expected rate of return on the investment? and 3) how liquid is the investment? Breakeven time-period analysis focuses exclusively on the third question: when will I get my money back?

When confronted with a payback time period of 15 to 20 years, many people decide that is too long to wait to get their “investment” back. So, they claim as early as possible. Yet, by ignoring the implied rate of return to delayed claiming, such decisions are usually poorly informed. On our main website,we show that delayed claiming can offer high rates of return, even extraordinarily high rates of return in some circumstances. And these rates of return are inflation protected. A breakeven calculator tells you nothing about this important factor.

Breakeven analysis also says nothing about risk. Delayed claiming essentially provides a risk-free payoff in the form of inflation-protected higher future benefits. The only investments that approach this extremely low level of risk are federally insured forms of savings, like bank CDs.

In this era of low interest rates, it seems impossible to beat delayed claiming as an investment, unless perhaps you want to assume a lot of risk. Of course, the problem with high risk investments is that you might lose everything you invested.

If you are interested in maximizing your Social Security benefits, you should investigate our Social Security calculator, which provides step-by-step guidance as to how to get the most out of Social Security.

Can I Double My Monthly Social Security Benefit by Claiming at 70?

Answer: Maybe

In a recent posting on Reuters, Lynn Brenner writes about an example provided by T Rowe Price’s Christine Fahlund where someone who claims at 70 can double the monthly benefit that they would have received if they had claimed at 62. This is a surprising result. The usual calculation is that the difference between claiming at 62 and 70 is 76%. This calculation reflects the fact that at 62 a person will get three quarters of the benefit at 66 (full retirement age) and a benefit 32% higher at age 70.

Where then does the idea come from that the benefit can double when someone waits until 70? Ms Fahlund uses The Social Security Quick Calculator to get her result. The reason that the benefit doubles is that the Quick Calculator assumes that claiming occurs at the time a person stops working. Since the benefit at any age depends on work history, continuing to work from 62 to 70 can increase the benefit that someone claiming at 70 will receive.

The calculator does this calculation for a hypothetical person. It does not know the actual work history for any particular individual. How much your benefits will increase from 62 to 70 will depend on your actual work history. Because your work history is almost certainly different from the work history of a hypothetical person, the increase in your benefits will be different from the calculation provided by the Social Security Quick Calculator. So your benefit may double if you work until 70 and then claim, but then again it may not.

Fortunately, it is not hard to find out what your situation actually is. Social Security does a similar calculation in Your Social Security Statement. (If you do not have a statement you can go either go to or and get the same information.) Look at what the statement says about the benefits you will receive at 62 and 70, respectively. Divide one into the other and you will see whether your benefit will double. Mine is 86% higher.

Whatever the increase, you may not want to wait as long as 70 before claiming your benefit. Every year you wait, you will lose benefits that year. To determine the best strategy for you and your wife, order a report from Our calculator takes these trade-offs into account so you can determine the best time to claim your benefits.