Interesting article on SS strategies

[braumeister]

Social Security has been problematical from the beginning.

Quote:

The first reported Social Security payment was to Ernest Ackerman, a Cleveland motorman who retired only one day after Social Security began. Five cents were withheld from his pay during that period, and he received a lump-sum payout of seventeen cents from Social Security. The first monthly payment was issued on January 31, 1940 to Ida May Fuller of Ludlow, Vermont. In 1937, 1938 and 1939 she paid a total of $24.75 into the Social Security System. Her first check was for $22.54. After her second check, Fuller already had received more than she contributed over the three-year period. She lived to be 100 and collected a total of $22,888.92.

Despite always being told that it was designed as a supplemental benefit, not a total financing of your retired lifestyle, I don't think many Americans have ever quite seen it that way.

There will be adjustments, as there have been adjustment many times since the law was first proposed. It's possible that politics may be involved, in addition to practical financial considerations.

[springnr]

Quote:

Originally Posted by Running_Man The main issue seems to be that this is actually in the present 2015 budget proposal from the president, so this is really quite high profile and indicative of issues to be coming with social security.

Congressman and Senators are well aware that midterm elections have always drawn older voters to the polls in disproportionate numbers. The younger crowd gets more involved during Presidential election years, thus waiting until 2015, after the 2014 midterms.

[Major Tom]

Quote:

Originally Posted by braumeister Despite always being told that it was designed as a supplemental benefit, not a total financing of your retired lifestyle, I don't think many Americans have ever quite seen it that way.

I think many Americans don't plan much for the future much at all, so will take whatever they are given when they become eligible for SS.

[Tadpole]

Let me see if I understand.
I was planning:
1) To delay and maximize my own SS by waiting until age 70.
2) To get a 8% increase each year from FRA to 70.
3) To collect 1/2 my husband's SS between FRA and 70.
4) For my husband to maximize his claim for my higher SS if I died between age 66 and 70.

If this change becomes reality only my number 3) is no longer possible. Is that right? Do you still get the 8% if you delay?

[Tadpole]

Is anyone here already in the FRA-age 70 window and collecting spousal benefits?

[gerntz]

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.

[misanman]

Quote:

Originally Posted by Tadpole Is anyone here already in the FRA-age 70 window and collecting spousal benefits?

Yes, I have been collecting spousal benefits for almost two years.

[NYEXPAT]

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

[ejman]

Quote:

Originally Posted by NYEXPAT 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

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]

Quote:

Originally Posted by F4mandolin Our retirement savings are small enough that we won't be able to wait very long. It will be either take it at 62.....or probably by 64. The rules on SS (like taxes) are WAY too complicated (in my very humble opinion). If I were King.....I would just keep it simple and you would get what you get when you take it without all the fancy in+outs that we have now. It also ticks me off when the media keeps reporting that every year you wait will get you around 8% a year back. If I am correct (sometimes I actually am), if I wait from 62 to 64.....I would get maybe 6% a year? After 66/67 I think it bumps up to that 8ish% rate.

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]

Quote:

Originally Posted by Running_Man I don't think the average couple if both were 62 and earned a very modest income of 50K per year each would very well be able to retire without claiming Social Security at that age. Social Security per their calculator would provide 949 dollars per month at age 62 and $1,680 at age 70. For a couple the net income is 23K at age 62 or 40K at age 70. In order to defer to age 70 the couple would need to have almost 182K plus enough additional savings to retire on. By deferring they will receive an additional 17K per year at age 70. If it is 70K per year total they plan to retire on, just 70 percent of final income they would need (70K -22K-17K) = 31K Times 25 for 4% withdrawal or 775,000 additional dollars on top of the 182K needed for deferral. It is going to be hard to politically argue that someone with nearly a million dollars in the bank is not "rich" and this strategy is needed for the average person. Especially when the average person only has $56,000 when reaching this age. I think a reasoned view would show that only those far far above average in savings are actually able to take advantage of these rules. When you compare that to top earning individuals who would have 20K at age 62 and 36K at age 72 or 40K and 72K respectively, it is easy to see where political issues are going to be pointed out. Average Retirement Savings by Age

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.

[Independent]

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.)

[Independent]

Quote:

Originally Posted by gerntz 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.

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:

Quote:

40% of the first $500 of average monthly income + 10% of the next $200, all increased by 1% per year of coverage.

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]

Quote:

Originally Posted by Independent 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.

+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.

[Alan]

Quote:

Originally Posted by Independent 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.)

Quote:

Originally Posted by youbet +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]

Quote:

Originally Posted by Alan +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.)

+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.

[samclem]

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.

[NYEXPAT]

Quote:

Originally Posted by ejman 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.

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]

Quote:

Originally Posted by samclem 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.

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]

Quote:

Originally Posted by samclem 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.

+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.