Regardless of how much high income folks game the SS system to their advantage, they still get less return for their input bucks than those that paid in to the minimum or even somewhat more. Net, the only thing wrong with the system is giving a bigger return to the lower income folks in what is supposed to be a pension system, not welfare or charity.
Interesting article on SS strategies
- Thread starter ejman
- Start date
misanman
Thinks s/he gets paid by the post
- Joined
- Apr 28, 2008
- Messages
- 1,252
NYEXPAT
Thinks s/he gets paid by the post
I seriously doubt they will be changing the rules in the next few years when I turn 62. A while back I did some calculations based on the rules as best I could understand them. Before I retired I contributed about $110,000 and was curious what the "capitalized value of my SS benefits" was on a non-cola basis.
If all goes according to Hoyle it should be worth $1,511,000 in today's Dollars.
I have one of those "Modern Families" that require numerous calculations to find "maximum benefit amount".
Here are my data points behind the number:
62 y/o Male
34 y/o spouse non-citizen
2 children aged 10 and 1
Husband claims SS at 62 $1500.00 monthly
Children receive family benefit $1800.00 monthly
Age 66 Husband suspends benefit until age 70 (receiving 8 % increase on age 62 reduced benefit)
at age 70 restarts SS at FRA benefit of between $1800.00-$1980 monthly
When child 1 reaches 18 and loses benefit, spouse collects $900.00 monthly until child 2 turns 16. (After living in USA or Chile for five years)
When spouse turns 62 she collects 32% of husbands FRA $700.00
Five years later husband dies (96) and spouse is 67 and collects husbands $1800 benefit for approx 23 years.
Husbands total $633,600
Child 1 total $ 86,000
Child 2 total $ 189,000
Spouse total $602,000
Family Total= $1,511,000
If all goes according to Hoyle it should be worth $1,511,000 in today's Dollars.
I have one of those "Modern Families" that require numerous calculations to find "maximum benefit amount".
Here are my data points behind the number:
62 y/o Male
34 y/o spouse non-citizen
2 children aged 10 and 1
Husband claims SS at 62 $1500.00 monthly
Children receive family benefit $1800.00 monthly
Age 66 Husband suspends benefit until age 70 (receiving 8 % increase on age 62 reduced benefit)
at age 70 restarts SS at FRA benefit of between $1800.00-$1980 monthly
When child 1 reaches 18 and loses benefit, spouse collects $900.00 monthly until child 2 turns 16. (After living in USA or Chile for five years)
When spouse turns 62 she collects 32% of husbands FRA $700.00
Five years later husband dies (96) and spouse is 67 and collects husbands $1800 benefit for approx 23 years.
Husbands total $633,600
Child 1 total $ 86,000
Child 2 total $ 189,000
Spouse total $602,000
Family Total= $1,511,000
Pretty good return on your investment! Frankly I would be absolutely amazed (from my grave since I will be long dead) if the scenario you portray really comes to pass. By my calculation you are peering a total of 56 years into the future. I would think there is more than a slight chance SS (among many other things) will be vastly different then.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
You are right - the 8% referred to is the annual increase in benefits from FRA to age 70. From 62 to FRA the benefits increase are in that lower range.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Thank you. You just made my point for me. It is not inconceivable that a LBYM couple earning $100k a year that has saved regularly over their entire career and invested in no-load, low cost index funds would have amassed $1 million at age 62 and could utilize the strategy. At the same time, $100k a year income is hardly a 'upper" income. So the proposal really penalizes savers, not just upper-income but middle-income as well.
Last edited:
Independent
Thinks s/he gets paid by the post
- Joined
- Oct 28, 2006
- Messages
- 4,629
This strategy has been discussed often here. I have always thought it was strange that Congress would have put this little extra in (for people who can analyze it). So getting rid of it seems logical to me.
(Full disclosure, I can't use it.)
(Full disclosure, I can't use it.)
Independent
Thinks s/he gets paid by the post
- Joined
- Oct 28, 2006
- Messages
- 4,629
I don't know how we determine what Social Security was "supposed to be".
I can say that the first monthly benefit, as mentioned above, came from the 1939 formula which was:
So the higher replacement ratio for lower income workers has been there since the beginning.
http://www.ssa.gov/policy/docs/ssb/v18n5/v18n5p13.pdf
youbet
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
+1
I agree. There is no good reason to add strain to an already failing system by allowing options that increase outflows. Only choices that are actuarially equivalent should be part of the SS system.
+2
Even though we can use it, I agree that it should be fair on an actuarial basis.
(Full disclosure, I will use it if it is available.)
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
+3 if it is available I will take it with no guilt whatsoever, but I concede that it would be best is all alternatives available to a beneficiary or a couple were actuarial equivalent (expected pv of benefits are the same).
Note - my understanding is that for a single beneficiary that the benefits are designed to be actuarially equivalent, probably using unisex mortality.
The issue only arises due to the socially/politically thorny concept of the SS spousal benefit. If SS were a very simply constructed individual benefit, it's very easy to make things actuarially neutral for taking the benefit at any age vs any other age (for big groups. The individual may be able to optimize the decision based on his/her own personal health, risk factors, etc). But the spousal benefit allows a person to claim SS under two different qualifications: on their own work record or as the spouse of another worker. And present laws allow them to change their claiming status on the fly.
- Fundamentally: Why does a person gain a SS benefit by virtue of being married to someone who earned such a benefit? I can see the value in a "survivor's benefit" provision allowing a worker to decrease his/her benefit so that all or a portion would go to a spouse if the worker pre-deceases the spouse. Making the spousal benefit "free" (as we do now) can be viewed as a tax on all those who pay for it, or who are single and can't benefit from it.
On this "loophole" (claim as spouse, earn credits and then claim on own record), the "married vs single" disparity is much more significant than the "rich vs poor" disparity. I'm not reading any deep, incisive press reporting on that, or any fixes from politicians. Maybe it just won't sell papers/bring voters out.
Full disclosure: DW does not qualify for SS on her own and will get spousal benefits on my work record. We'll optimize our benefits to the full extent allowed by the rules.
- Fundamentally: Why does a person gain a SS benefit by virtue of being married to someone who earned such a benefit? I can see the value in a "survivor's benefit" provision allowing a worker to decrease his/her benefit so that all or a portion would go to a spouse if the worker pre-deceases the spouse. Making the spousal benefit "free" (as we do now) can be viewed as a tax on all those who pay for it, or who are single and can't benefit from it.
On this "loophole" (claim as spouse, earn credits and then claim on own record), the "married vs single" disparity is much more significant than the "rich vs poor" disparity. I'm not reading any deep, incisive press reporting on that, or any fixes from politicians. Maybe it just won't sell papers/bring voters out.
Full disclosure: DW does not qualify for SS on her own and will get spousal benefits on my work record. We'll optimize our benefits to the full extent allowed by the rules.
Last edited:
NYEXPAT
Thinks s/he gets paid by the post
You know that and I know that, but the Wife does not. Let's pray she develops a "sense of humor" in her later years.
Tadpole
Thinks s/he gets paid by the post
- Joined
- Jul 9, 2004
- Messages
- 1,434
It really goes beyond the "married vs single". For two earners, especially those with comparable benefits, the system is not as lucrative especially without the gaming methods. There is no step-up spousal while both are alive and, when one spouse dies, only one of the two SS incomes can be kept. So the two earner couple paid twice as much into the system to produce the same income for widows as the single worker family. I have long felt that the single earner should pay into the system on behalf of his spouse. After all there is no discount in payroll tax for payment of a day care bill. When you consider individual, rather than group, actuarial results you run into situations that make the gaming more fair to the taxpayer and situations that make it less fair. For group insurance, such arguments become less valid.
thefinancebuff
Recycles dryer sheets
- Joined
- Dec 6, 2008
- Messages
- 299
+1. If you want to benefit someone else you have to reduce your own benefits. Right now someone could marry multiple times each lasting 10 years and the taxpayers just pay multiple ex-spouses for no reason.
Good data. Thanks.
And it's still true even when the higher income folks try to improve their fate somewhat.
Why's that? Seems this encourages being married - a good thing for society I think.
NW-Bound
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Jul 3, 2008
- Messages
- 35,712
Uh Oh! No more "File-and-Suspend" for SS?
The administration is looking to stop "File-and-Suspend" saying that it is an "aggressive move" that allows well-to-do retirees to "manipulate" their SS filing decisions.
See: 'File-and-suspend': A Social Security strategy under fire: Thomson Reuters - MSN Money.
This is why I do not want to think or plan too far ahead on SS because I still have 8 years to FRA. A lot will change from here to then.
Excerpts follow:
The administration is looking to stop "File-and-Suspend" saying that it is an "aggressive move" that allows well-to-do retirees to "manipulate" their SS filing decisions.
See: 'File-and-suspend': A Social Security strategy under fire: Thomson Reuters - MSN Money.
This is why I do not want to think or plan too far ahead on SS because I still have 8 years to FRA. A lot will change from here to then.
Excerpts follow:
"... a White House official, speaking on background, confirmed to me that the target is a benefit claiming strategy known as file-and-suspend - a twist on the more straightforward strategy of delayed filing to earn a higher monthly benefit down the road. Although it's technically available to anyone, the White House thinks the strategy is being used to unfair advantage by high-income seniors and wants to shut it down because of the added benefit cost it imposes on the Social Security program.
Any change to file-and-suspend would require congressional action, so don't expect anything soon. But words like "aggressive" and "manipulate" are unusually strong for a federal budget document, so let's look at what file-and-suspend is about - how it's used and whether it makes sense to target it for elimination.
...
Here's how it works: The spouse with the higher PIA - typically the man - files for benefits at his full retirement age (FRA), then immediately files a notice to suspend payment of those benefits. That permits the lower-PIA spouse to file for a spousal benefit, which is equal to half the husband's benefit.
That gets some benefit flowing to the household while the husband continues to accrue higher benefits until he files to start payments, perhaps as late as age 70; the wife then converts to her own full benefit. (Note: The spouse can convert to her full benefit only if she waits until her FRA to file for a spousal benefit.)"
Any change to file-and-suspend would require congressional action, so don't expect anything soon. But words like "aggressive" and "manipulate" are unusually strong for a federal budget document, so let's look at what file-and-suspend is about - how it's used and whether it makes sense to target it for elimination.
...
Here's how it works: The spouse with the higher PIA - typically the man - files for benefits at his full retirement age (FRA), then immediately files a notice to suspend payment of those benefits. That permits the lower-PIA spouse to file for a spousal benefit, which is equal to half the husband's benefit.
That gets some benefit flowing to the household while the husband continues to accrue higher benefits until he files to start payments, perhaps as late as age 70; the wife then converts to her own full benefit. (Note: The spouse can convert to her full benefit only if she waits until her FRA to file for a spousal benefit.)"
Last edited:
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
There is a similar thread on this so perhaps they should be merged.
Since ALL couples can file and suspend, this initiative will really hurt savers (those how have saved for retirement and can use savings to carry them through the years they suspend receiving benefits), and not high-income. You could have a high-income couple who hasn't saved for retirement and therefore do not have the resources to suspend their benefits. Conversely, you could have a middle-income LBYM couple who have prudently saved for retirement and could use those savings to carry them through the suspend years that will be denied this benefit. Another group it will hurt is those with reasonably good non-COLA pensions who can rely on their pension benefits during the suspend years and use the higher COLAed SS benefits to secure their later years and protect themselves from inflation. But I'll admit that threatening high-income people makes for good main street politics for the administration.
As I think someone mentioned in another thread, another aspect of this is that lower income people receive more benefits in relation to what they pay in to SS than do higher income people and file and suspend is one way that higher income people who have saved can make the playing field a bit more level.
It'll be interesting to watch.
Since DW and I are close to the same age, it doesn't make a world of difference to me but my plan is to file and suspend at FRA and then wait until 70 but if we can't then I suppose we would just both take SS at FRA or perhaps DW will take hers at 62 or FRA and then I'll take mine at 70 and she'll get bumped up to 1/2 of my FRA.
We are a few years (and thankfully a different administration) away from having to make those decisions.
Since ALL couples can file and suspend, this initiative will really hurt savers (those how have saved for retirement and can use savings to carry them through the years they suspend receiving benefits), and not high-income. You could have a high-income couple who hasn't saved for retirement and therefore do not have the resources to suspend their benefits. Conversely, you could have a middle-income LBYM couple who have prudently saved for retirement and could use those savings to carry them through the suspend years that will be denied this benefit. Another group it will hurt is those with reasonably good non-COLA pensions who can rely on their pension benefits during the suspend years and use the higher COLAed SS benefits to secure their later years and protect themselves from inflation. But I'll admit that threatening high-income people makes for good main street politics for the administration.
As I think someone mentioned in another thread, another aspect of this is that lower income people receive more benefits in relation to what they pay in to SS than do higher income people and file and suspend is one way that higher income people who have saved can make the playing field a bit more level.
It'll be interesting to watch.
Since DW and I are close to the same age, it doesn't make a world of difference to me but my plan is to file and suspend at FRA and then wait until 70 but if we can't then I suppose we would just both take SS at FRA or perhaps DW will take hers at 62 or FRA and then I'll take mine at 70 and she'll get bumped up to 1/2 of my FRA.
We are a few years (and thankfully a different administration) away from having to make those decisions.
Last edited:
ziggy29
Moderator Emeritus
Just as with the ability to pay back everything and refile later, frankly I don't expect to have any "strategies" available to me when I get there -- it's the Gen X curse. The good stuff is all taken away before I can benefit from it. 
NW-Bound
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Jul 3, 2008
- Messages
- 35,712
Yes, I see it now, the one started by ejman. I'll ask the mods to merge. Thx.
it's the Gen X curse. The good stuff is all taken away before I can benefit from it.
Damn whippersnappers! Shut up and eat your brussels sprouts. When I was your age ...
W2R
Moderator Emeritus
Done, so both threads on this topic are combined in this thread.
I suspect that all of this effervescence will in the near future lead to a much simpler more limited SS benefit schedule where for example if one partner wishes to make sure the surviving partner benefits then the first partner will have to agree to a reduction in benefits so that benefits paid are actuarially equivalent through additional partners as well. The elimination of the collect and repay and then later refile gambit a few years ago was a shot across the bow - much more coming and probably sooner rather than later. That one was done by a simple rule change. I don't know to what extent that approach will be followed in the future but there may well be a "shoot first and ask questions latter"
Last edited:
Just as with the ability to pay back everything and refile later, frankly I don't expect to have any "strategies" available to me when I get there -- it's the Gen X curse. The good stuff is all taken away before I can benefit from it.
Too many politicians monitoring sites like this that highlight all these goodies?
