SS File and Suspend to End?

[MichaelB]

We'll need to keep politics our of this discussion if we want it to continue ..

 

[thefinancebuff]

Some of us are already on spousal or divorced spousal benefits, and waited to do this until FRA in order to allow our own benefits to grow until age 70 (at which point some of us planned to switch to our own, by then higher benefits). I am not sure but there is a concern that the pending legislation will change SS law on us in midstream so that we cannot get our full (age 70) benefits when we are 70.



Forbes Welcome

I know that in my case, had I known this in advance I would NOT have collected my divorced spousal benefits at all. I have always planned on, and counted on, my full age 70 benefits from age 70 on.

Tadpole, my understanding is that we are NOT grandfathered.

That's not the case. Kotlikoff said

Worse, it will induce those who have suspended their benefits in order to collect higher benefits at 70 to restart their benefits at permanently lower levels in order to maintain their family’s immediate living standards.

Note induce, not force. If you don't fall for the inducement, you still get your higher benefits at 70.

 

[athena53]

won't happen - one of the founding principles of SS (and any other social insurance program) is that need is presumed

Right. One of the other principles was the promise that the SS number would never be used as an official ID number for other purposes. Politicians break promises all the time and I maintain that taxation of benefits for those with higher income is a form of means testing.

Right now I'm reading a book on the development of SS and I agree- the founders were adamant that it NOT be a form of welfare for people in need, but available to everyone who contributed. Years ago when I met Bob Myers, who was involved as a newbie actuary, and asked him about means-testing for SS to save the program, he said it was a bad idea because it would discourage individual saving.

Sorry, I guess I'm veering off into Political. To get back to the OP- I suspect the provision they're trying to change was an oversight (how many pages would the SS code take up if printed? easy to miss unintended consequences) and few people noticed it till Kotlikoff picked up on it.

 

[W2R]

That's not the case. Kotlikoff said


Note induce, not force. If you don't fall for the inducement, you still get your higher benefits at 70.

Thanks, that would sure be ideal. I did notice that the word "induced" was used (and quoted it from the Forbes article in my post above too), but for some reason I wondered if the usage of that word is at all firmly founded in the bill itself. I would be thrilled if they would just obligingly end my present payments and allow me to arrange to continue as before.

I guess time will tell if that is really what is going to happen or not.

 

[Big_Hitter]

Right. One of the other principles was the promise that the SS number would never be used as an official ID number for other purposes. Politicians break promises all the time and I maintain that taxation of benefits for those with higher income is a form of means testing.

.

then I'm sure when you studied for course 200 (or course 5) you remembered the mnemonic PRINCIPLES for principles of social insurance programs? The N is need is presumed

Pay as you go
Relationship between benefits and earnings
Individual equity versus social adequacy
Need is presumed
etc

 

[Tadpole]

The only source so far on this is Kotlikoff, and this is his bread and butter. I'm a bit skeptical things are as severe as he claims, especially the part that reduces current payments.

True, but, since the change might have a lot of reach-back implications in terms of permanently lost previous income, people need to be able to take action yesterday.

For example, if they make it apply to me personally, I have already lost about $21,000 of income I would have otherwise have collected plus an additional 1700+ for each month I am confused and not switched. So it's important that the details come out quickly. (At least to me.) If we are grandfathered then it is to my advantage to continue to delay my claim. If not, each month I don't make a claim on my own entitlement, I forgo $1700 in income.

 

[marko]

won't happen - one of the founding principles of SS (and any other social insurance program) is that need is presumed

Good to know.

 

[Big_Hitter]

I also remembered at a conference Myers getting up and saying that the move to tax SS benefits also violated the founding principles.


No one knew more about SS than he.

 

[Independent]

The only source so far on this is Kotlikoff, and this is his bread and butter. I'm a bit skeptical things are as severe as he claims, especially the part that reduces current payments.

I agree that Kotlikoff's language is extreme "devastating, Draconian".
But, when I read the text, I get the impact on current retirees. This is from subsection 831(b) using the link above:

7 ‘‘(3) In the case of an individual who requests that
8 such benefits be suspended under this subsection, for any
9 month during the period in which the suspension is in effect—

11 ‘‘(A) no retroactive benefits (as defined in subsection (j)(4)(B)(iii)) shall be payable to such individual;

14 ‘‘(B) no monthly benefit shall be payable to any
15 other individual on the basis of such individual’s
16 wages and self-employment income; and

17 ‘‘(C) no monthly benefit shall be payable to
18 such individual on the basis of another individual’s
19 wages and self-employment income.’’

(3) EFFECTIVE DATE.—The amendments made
25 by this subsection shall apply with respect to bene-
1 fits payable for months beginning at least 180 days
2 after the date of the enactment of this Act.

OTOH, the "deeming" portion in subsection 831(a) explicitly says:

22 (3) EFFECTIVE DATE.—The amendments made
23 by this subsection shall apply with respect to individuals who attain age 62 in any calendar year after 2015.

 

[Big_Hitter]

wow that's a heck of a grandfather clause

 

[Chuckanut]

They do have means testing. It's in the form of taxation of SS benefits if your income is over certain levels.

+1 Very true!

And, IIRC, the income limits for additional taxation are not inflation adjusted. So the tax goes up almost every year.

 

[Chuckanut]

EFFECTIVE DATE.—The amendments made
23 by this subsection shall apply with respect to individuals who attain age 62 in any calendar year after 2015

.

So, if one hit 62 in 2015, the old rules apply?

 

[RunningBum]

Wow. Very interesting. One of the arguments frequently used by the wait till 70 crowd is that they will have plenty of warning of proposed legislation so as to take evasive action before any law modifying SS benefits is enacted. I first heard of this today. It looks like it will be passed by the house tomorrow, the senate shortly thereafter and then signed into law by the President when - next week?

Is this really the same thing?

The assumption/hope for wait til 70 is that once you are 62, your choice to wait won't be penalized vs taking it at 62. Either your benefit is locked in even if you haven't started to collect, or it is somehow adjusted so that the decision not to take at 62 is not retroactively a bad one.

In other words, say you could've gotten 1500/month at 62, or 2500/mo at 70. You wait til 70, but at 69, benefits are halved. The hope is that either you are grandfathered at 2500 (+inflation as usual), or somehow they make you whole for the 1500/month you would've gotten for 7 years. Otherwise, had you known it was going to go this way in advance you would've taken 1500 for 7 yrs before benefits got halved so it's not fair to those who waited. Not saying that can't happen, but it is an assumption/hope, and maybe not a safe one.

This change just sounds like they are cutting off a loophole. I don't see that there's an actuarially different decision you would've made based on this information. At least that's how I understand it. You may have decided to take at 62 rather than 70, but there's no actuarial difference in those, and in fact you still got a few years between 62 and 70 where you got the extra spousal benefit.

In other words for this case, if you are 69 now and knew 7 years ago that this change was coming, should/would you have done something different because it is clearly a better choice with this change?

EDIT: And now I see the post that this change doesn't affect anyone already eligible, so that shows a precedence for not changing the rules midstream and penalizing the wait til 70 crowd. Still not a guarantee that they'll stick to that precedence but it does show that today's politicians are aware of it.

 

[Independent]

As close as I can tell, this impacts us. I'm 68, I filed and suspended at 67 so that my wife could get spousal benefits on my record. She was a SAHM for most of our marriage and doesn't quite hit the 40 quarters for her own benefit, so we're talking about the difference between $1,000+ per month and zero.

I haven't done the math yet, but I'm guessing that the value of increasing my benefit by deferring an additional nn months is less than the loss of her entire benefit for nn months.

In my case, I was thinking about starting in Jan 2016 anyway for non-financial reasons, so this probably just seals the deal.

I can't complain a lot. I understand that from a single worker's perspective, any spousal benefit is "extra" that the single worker doesn't get. So this just reduces the extra.

I have to think that the SS customer service people are not looking forward to talking to everyone impacted by this over the next 6 months. I'm glad that I already have an appointment date.

 

[Independent]

.

So, if one hit 62 in 2015, the old rules apply?

For Section 831(a), yes. I'm not sure which section is more important to you.

 

[rodi]

+1
Priceless, I turn 62 next month!

Talk about squeaking in under the wire:

22 (3) EFFECTIVE DATE.—The amendments made
23 by this subsection shall apply with respect to individ-
24 uals who attain age 62 in any calendar year after
25 2015

(page 73 of the doc I linked above)

Unfortunately for many here - the file and suspend section becomes effective 180 days after the law passes. (page 76 of the doc)

24 (3) EFFECTIVE DATE.—The amendments made
25 by this subsection shall apply with respect to bene-
1 fits payable for months beginning at least 180 days
2 after the date of the enactment of this Act.

 

[ziggy29]

Generation X never gets any of the good stuff.

 

[Big_Hitter]

so two grandfathers? one for the deemed filing (age 62) and the other for retroactive payments (180 days). Hopefully he sold a bunch of his $40 software.

 

[ivinsfan]

Talk about squeaking in under the wire:

(page 73 of the doc I linked above)

Unfortunately for many here - the file and suspend section becomes effective 180 days after the law passes. (page 76 of the doc)

When it says at least 180 days after, doesn't that mean that is the soonest it can be effective..

 

[rodi]

so two grandfathers? one for the deemed filing (age 62) and the other for retroactive payments (180 days). Hopefully he sold a bunch of his $40 software.

The age 62 in/before 2015 is for the child's insurance or spouse/caretaker of child's insurance.

The 180 days is for the spouse insurance (no kids involved) - so the part used in file and suspend strategies.

 

[jdmorton]

Mike Piper (ObliviousInvestor) has joined the Bogleheads.org discussion on this subject (thread title "Changes to SS regulations in new funding bill"). Here is a quote regarding his reading of the proposed bill: "It essentially makes the restricted application strategy dead in the water (for some people), via changes to deemed filing. Specifically, deemed currently only applies prior to full retirement age. If this bill passes, it would apply regardless of age."

 

[ziggy29]

... has joined the Bogleheads.org discussion on this subject (thread title "Changes to SS regulations in new funding bill"). Here is a quote regarding his reading of the proposed bill: "It essentially makes the restricted application strategy dead in the water (for some people), via changes to deemed filing. Specifically, deemed currently only applies prior to full retirement age. If this bill passes, it would apply regardless of age."

I'm surprised they are even allowing this discussion on Bogleheads, especially since it isn't even law yet.

 

[Big_Hitter]

I'm surprised they are even allowing this discussion on Bogleheads, especially since it isn't even law yet.

Boehner submitted an amended version of the bill - this thing is evolving

 

[W2R]

Boehner submitted an amended version of the bill - this thing is evolving

Oh good. Maybe this is a good time to just wait (and not worry) until the bill passes and we know what is going to happen.

Often I find that bills that are not passed, are a source of needless worry.

 

[Bestwifeever]

This paragraph from the link in the OP, while it is my strategy and was outlined by the nice person in the local SS office, always did seem like a generous loophole to me:

Finally, there is egregious inequality in the treatment of those born a few years apart. Someone who is now 70 and who has collected a full spousal benefit since 1966 and waited until this year to collect her retirement benefit will have received as much as $50,000 more from the system than someone in the same circumstances but who just turned 66.

My date to implement this strategy is August 1, 2016--about 280 days from now. If the legislation as first proposed passes, I will now have to choose between taking spousal on 8/1 or delaying claiming until 70, rather than doing both. Kotlikoff can now create all new software to show the numbers involved in these new decisions so it's still a win situation for him.