Interesting article on SS strategies

[ejman]

Interesting article on how some of the SS claiming strategies that are the subject of so much discussion at this forum might be in for a rough ride.

"The president’s fiscal-year 2015 budget included language to “eliminate aggressive Social Security-claiming strategies, which allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits.”

Is it time to close a Social Security loophole? - Encore - MarketWatch

 

[pb4uski]

What bugs me about these articles is the emphasis put on upper-income beneficiaries while the fact is that these strategies are really available to ALL beneficiaries irrespective of their income.

 

[mickeyd]

Eliminating this option is an easy call. When to claim Social Security shouldn’t be a question of gamesmanship for those with the resources to figure out clever claiming strategies.

I agree that it was too easy. Glad I am almost 70 and can complete my claiming strategy before the feds shut it down.

 

[haha]

Nothing much interests journalists anymore if it can't be pitched as the bad upper income person against the poor struggling and deserving lower income person.

 

[thefinancebuff]

What bugs me about these articles is the emphasis put on upper-income beneficiaries while the fact is that these strategies are really available to ALL beneficiaries irrespective of their income.

It's probably supported by statistical evidence. The strategies are available to all but only upper-income beneficiaries take advantage when can afford the wait.

 

[ejman]

Interesting that the direction of this discussion seems to have taken an upper vs lower income direction and the morality thereof. I think the real import is for planning purposes for the (relatively) high NW folks that frequent this forum and are planning on using the deferral tricks while spending their own assets waiting for that SS golden calf at the end.

 

[Animorph]

Interesting that the direction of this discussion seems to have taken an upper vs lower income direction and the morality thereof. I think the real import is for planning purposes for the (relatively) high NW folks that frequent this forum and are planning on using the deferral tricks while spending their own assets waiting for that SS golden calf at the end.

There is no "golden calf" at the end. As far as SS is concerned it costs them the same amount whether you claim at 62 or 70. The only guys making out are those that live beyond their life expectancy.

To my mind there is a small pot of gold is in the spousal benefit claiming scheme. That gives you 3 to 4 years of a half benefit for one spouse over and above what they would receive as singles. Yeah, you have to be able to delay SS to 70, but you also have to be married with both spouses receiving semi-equal SS benefits. Not exactly a matter of high income.

 

[marko]

Take SS ASAP and pray to get grandfathered in before they change the rules!

 

[foxfirev5]

I am afraid the rules will be repeatedly changed for both SS and retirement plans. Just like a SWR we will need to constantly adapt to new rules. My plan is still to take SS early and manage a diversified portfolio to make up the rest. It should be interesting to say the least.

 

[Gumby]

What bugs me about these articles is the emphasis put on upper-income beneficiaries while the fact is that these strategies are really available to ALL beneficiaries irrespective of their income.

In its majestic equality, the law forbids rich and poor alike to sleep under bridges, beg in the streets and steal loaves of bread.

Anatole France -- Le Lys Rouge [The Red Lily] (1894), ch. 7

 

[racy]

As I read it, sounds like they want to revert back to the pre-2000 method of calculation. I believe that changes need to be made to many US entitlement programs to ensure their viability. Correcting the unintended consequences of the Senior Cititzen's Right to Work Act of 2000 seems OK to me.

 

[pb4uski]

It's probably supported by statistical evidence. The strategies are available to all but only upper-income beneficiaries take advantage when can afford the wait.

While I see your point, the fact remains is that even low or middle-income beneficiaries who saved for retirement would probably have enough retirement savings to take advantage of these claiming strategies, so IMO it still isn't exclusive to high-income beneficiaries.

But I concede that if your retirement savings are small then is it harder to delay.

The problem is even putting couples claiming strategies aside and focusing on delayed retirement credits, one could argue that those delayed retirement credits can only be taken by those with retirement savings (or still working) and since those with retirement savings are probably high-income that delayed retirement credits should be closed down too.

 

[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.

 

[Coffee Mavin]

If you start claiming early, then your start date for your own date should be calculated from that early start. They do need to remove manipulations with unintended cost implications from the program when future enrollees are getting their dates pushed back as a result of mismanaged programs.

 

[Running_Man]

While I see your point, the fact remains is that even low or middle-income beneficiaries who saved for retirement would probably have enough retirement savings to take advantage of these claiming strategies, so IMO it still isn't exclusive to high-income beneficiaries.

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

 

[Calico]

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.

The 8% per annum increase takes effect for every year you delay claiming after you reach your FRA, not at age 62. I agree that the media does a poor job of making this clear.

 

[springnr]

How well does file and suspend work for a single contributor?

Imagine purchasing an annuity at 64 years of age, to start a COLAed payout of 40K at 66, and the actuarial table says you will die at 72 so probable payout of $250K, a price is agreed on, done deal.

Next week you return to the annuity company to tell them, hey good news I just got married…. you will need to bump the payout to 60K and when I die at 72 you can reduce it back to 40K, and my new spouse promises to only live to 90. Smile the payout only went to about a million no big deal, suck it up.

One would hope any changes apply to new contributors, not those with 30 to 40 years of mandatory participation.

 

[Coffee Mavin]

One would hope any changes apply to new contributors, not those with 30 to 40 years of mandatory participation.

Really? You mean like when they upped my FRA when I'd already been paying in for 30+ years?

That and other agencies borrowing money leaving IOUs in the SS Fund really frost me.

 

[W2R]

The article mainly seems to discuss the spousal benefit + delayed retirement scheme. However, the quote they provide from the proposed legislation is,

The president’s fiscal-year 2015 budget included language to “eliminate aggressive Social Security-claiming strategies, which allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits.”

This sounds to me like it would eliminate not only spousal benefit schemes, but also eliminating the possibility of even single people delaying SS to age 70 to maximize delayed retirement credits (and get higher monthly SS payments that way).

PBS provides the above quote too, and comments,

No one seems to know what this means or whether it will take an act of Congress to enact whatever it’s referring to. [...]Most likely, the administration will let high-income households collect a full spousal benefit, but somehow, deduct it from their retirement benefit once they start collecting it. This would add yet another level of unbelievable complexity to a system that could not be more complex and incomprehensible.

http://www.pbs.org/newshour/making-sense/obama-trying-cut-social-security/

 

[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. It would appear the aim is to eliminate most likely one filing and not taking the credit as well as the strategy where one spouse could claim their benefit and then at FRA switch to a spousal benefit and instead of the reduction being equal to the amount of reduction for being taken at age 62 it is reduced only by the difference between the lower earnings FRA and age 62 Social security.

As an example assume a same age couple one claims SS (lower earner) at age 62 for their own benefit of 650 per month. The FRA is 66 and the benefit then is 833 at that point. The higher earning spouse files at age 66 and suspends. The higher earner FRA benefit is 2400 per month. Lower earning spouse then files for spousal benefit which will end up being (1200 - 833+650) or $1,017 and not the 850 per month that the spouse would have gotten if both had taken at age 62. This "scheme" that I think is in the crosshairs, allows the lower earning spouse to get $165 per month higher for life and the higher earner to get nearly $1,000 a month more at age 70. This also allows for a permanently higher survivor spouse benefit for the lower wage spouse as well.

I can foresee to save money the rule could go to once you make a social security claim of any kind that is your age for payment and the lower earner would be locked into a survivor basis of $1700 per month and spousal benefit of 850 per month. Would save SS quite a bit of money without affecting most social security beneficiaries.

 

[braumeister]

Social Security has been problematical from the beginning.

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]

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]

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?