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.