Delaying SS is "buying annuity on the installment plan"

[JP.mpls]

Collecting 50% of your spouses SS when they reach FRA:

When she turns FRA at age 66 I'll claim 50% of her benefit, which I'll get for 3.5 years while my deferral will gain 8% annually for the period.

Rescueme,
I've been reading this forum for awhile, but not participating. (I've been staying out of trouble.) In fact, I finally registered just to ask you these questions.

I've read forum comments referring to this SS rule of collecting equivalent to 50% of your spouses SS once they hit FRA. This sounds too good to be true. Please clarify a few things:
- Your spouse must be at her FRA for you to collect 50% of her SS. If she chose to start collecting SS at 62, and she is now at FRA, can you still start collecting 50% of her SS?
- Does collecting from her SS in this manner have any affect on what your SS payout will be when you choose to start collecting SS?

Thanks in advance for any advice/information on this topic.

JP in Minneapolis

 

[MasterBlaster]

When she turns FRA at age 66 I'll claim 50% of her benefit, which I'll get for 3.5 years while my deferral will gain 8% annually for the period.

Rescueme,
I've been reading this forum for awhile, but not participating. (I've been staying out of trouble.) In fact, I finally registered just to ask you these questions.

I've read forum comments referring to this SS rule of collecting equivalent to 50% of your spouses SS once they hit FRA. This sounds too good to be true. Please clarify a few things:
- Your spouse must be at her FRA for you to collect 50% of her SS. If she chose to start collecting SS at 62, and she is now at FRA, can you still start collecting 50% of her SS?
- Does collecting from her SS in this manner have any affect on what your SS payout will be when you choose to start collecting SS?

Thanks in advance for any advice/information on this topic.

JP in Minneapolis

The SSA has a website that discusses spousal benefits:

Retirement Planner: Benefits for your spouse

But in general here are the rules...

1) You must be collecting SS benefits for the spouse to collect on your record.

2) If your spouse is at full retirement age (FRA) then her benefit will be half of yours and will be un-reduced. If they start collecting before FRA (eg. 62 years old) then the benefit will be reduced relative to what they get at FRA.

 

[rescueme]

Here's an article on the process. Look under "Team Play".

Two Ways To Optimize Social Security Benefits

Ours is a bit different than the article since my DW will be holding off to collect SS at her FRA (age 66) and I'll claim against her at that time (I'm a few months older). However, in the article it does show the lower earner (his DW) claiming at age 62. However, at his normal FRA, he can claim 50% of her full FRA benefit rather than the age 62 benefit she is currently collecting.

There are several ways to claim the 50% spousal under this plan, depending on your personal situation - being similar in age and a larger difference in salary/SS benefit is a bit better for this option - that's just my opinion. The bottom line is that you can get a bit more SS overall (between the two of you) over the long term, along with assumed higher benefits for the wife as survivor, assuming the man dies first and holds off on SS till age 70 leaving her with a much higher benefit for the rest of her life.

Of course if the salary reversal is in play and the male has the lower salary (along with an expected lifespan), that may affect any decision related to this stated option. Additionally, any health problems (for either) would also tend to not look at this in a positive manner.

 

[JakeBrake]

Both DW and I will reach FRA age 66 in 2011. DW will be filing on my record. DW has some SS on her own earnings, but her SS at age 70 would still be less than 1/2 of mine at age 66. My understanding is that spousal benefits do not increase after FRA is reached. We have been toying with the idea of my filing and suspending immediately so that she get spousal benefits and my benefits can continue to grow. On the other hand we usually follow the KISS (Keep It Simple, Stupid) principle, so we may file at the same time. Also, we were hit with Medicare part B premium increases in both 2010 and 2011. I don't think the increases applied to people who were on Medicare part B before 2010.

 

[JP.mpls]

Rescueme and MasterBlaster,
Thank you for the links on this topic. I have some reading to do.


My situation: My wife is older than I am, and I often tell her that I will be retiring when she retires, and that this will be one of my many perks for marrying an older woman.

This SS rule is just a little more incentive to follow through with these plans.

I also had visions of delaying collecting my SS beyond 62 to increase my SS payout. This option may allow me to collect some SS money early, and still collect my full SS at a later date. I'm very surprised they offer this.

On a side note: I didn't realize that all "rookies" to this forum were ignorant about laundry sheets. I kept seeing this phrase, but I didn't understand that it was referring to the poster's rating level in this forum. Kind of funny.


Take care,


JP in Minneapolis

 

[Rustic23]

I was going to wait until 70 to increase my wife's benefit should I die first. How ever, at age 67 I decided to take it. I looked at our finance and knew she was going to have enough no matter when I took it. Therefore, we decided to take it now and start cruising! Going to Panama next week.

 

[haha]

My wife is older than I am, and I often tell her that I will be retiring when she retires, and that this will be one of my many perks for marrying an older woman.

I worry.

 

[JP.mpls]

HaHa,
No need to worry, the lovely Linda and I have been a good team for 30+ years. Or were you referring to something other than our relationship?

JP

 

[ejman]

I see quite a number of posts in this and similar threads where the major earner is planning on delaying SS payments until age 70 so that the lower earning spouse can collect 1/2 of that increased benefit. Just curious why everyone seems to be so sure that rule couldn't be changed just as the collect at 62 pay it back and start collecting again at the higher rate at age 70 was. It would seem simple enough for the government to say you collect on your earnings period.

 

[MasterBlaster]

I see quite a number of posts in this and similar threads where the major earner is planning on delaying SS payments until age 70 so that the lower earning spouse can collect 1/2 of that increased benefit. Just curious why everyone seems to be so sure that rule couldn't be changed just as the collect at 62 pay it back and start collecting again at the higher rate at age 70 was. It would seem simple enough for the government to say you collect on your earnings period.

That's the rub you've hit on. You game the current rules to your advantage depending on your situation.

And then they go change the rules.

perhaps you were one of those highly compensated individuals who paid the max every year into SS. Just suppose then that they lower the payout caps or imposed means testing or other "solutions" to your detriment. Life just isn't fair. SS is already a crappy deal for these types but, I suspect, it will get even crappier still.

By the way the collect at 62/payback at 70 to get a higher rate trick is going away.

 

[JP.mpls]

Rescueme,
I just got done reading the links you and MasterBlaster recommended. This is what I'm getting from these articles:
- Spouse #1 must already be collecting SS.
- Spouse #2, who isn't collecting SS yet, must get to FRA.
- Spouse #2 , now at FRA, has the option of delaying their own SS, and collecting through Spouse #1's SS account at a 50% rate.
- By doing this from FRA up to the age of 70, Spouse #2's SS payout will increase while still collecting some SS money, because they are delaying their own SS claim .

This isn't going to help me. It sounded a little too good to be true.

When my wife hits FRA, I will be around 61. I had visions of collecting 50% of her SS starting at that age, and delaying the start of my SS until FRA. (Having my cake, and eating it too.)

Collecting while extending my SS up to FRA is a nice dream. This may be what haha was "worried" about.



JP

 

[MasterBlaster]

- Spouse #2, who isn't collecting SS yet, must get to FRA.

I don't think this is strictly true. If you are collecting a SS benefit then spouse can collect a (spousal) benefit starting at 62. However if the spouse is less than FRA then the benefit is reduced. So instead of getting half your benefit (at FRA) the 62 year old spouse may get just ~35% (or so depending on when you were born).

The other issue is that spousal SS benefits and personal SS benefits are only loosely connected. So depending on your situation a spouse can collect one of the benefits early and still get an unreduced benefit of the other part later. So that's what all this convoluted logic is about - gaming the spousal/personal benefit rules to your advantage.

 

[homestead]

Rescueme,
I just got done reading the links you and MasterBlaster recommended. This is what I'm getting from these articles:
- Spouse #1 must already be collecting SS.
- Spouse #2, who isn't collecting SS yet, must get to FRA.
- Spouse #2 , now at FRA, has the option of delaying their own SS, and collecting through Spouse #1's SS account at a 50% rate.
- By doing this from FRA up to the age of 70, Spouse #2's SS payout will increase while still collecting some SS money, because they are delaying their own SS claim .

This isn't going to help me. It sounded a little too good to be true.

When my wife hits FRA, I will be around 61. I had visions of collecting 50% of her SS starting at that age, and delaying the start of my SS until FRA. (Having my cake, and eating it too.)

Collecting while extending my SS up to FRA is a nice dream. This may be what haha was "worried" about.
JP

Try doing it the other way around, Have your wife start SS on her benefit at 66, then the next year you (62) start SS and suspend yours, then your wife can start collecting 50% of your SS. Your SS can be started at a later time of your choosing.

 

[chinaco]

.. As most people probably know, in the 1960 case of Fleming v. Nestor, the Supreme Court ruled that there is no vested property right in social security, so it is not unreasonable to view it as I have.

Oh absolutely, everyone is familiar with Fleming v. Nester! The connection is obvious...

Sorry... I couldn't resist.


I think it is legally a tax (technically by law for a specific reason for money collection purposes)... but it is by larger design a contribution to a plan. It is both. You do have an account by definition... they account for your benefit and maintain books on it... but by law (as it stands today)... you probably only have rights (in terms of money) to receiving the benefit. You cannot cash out, have a direct say or control in the program (other than within the way we legislate in the US). Here is how SSA describes it with a link to the history (how it became what it is today).

Your Social Security Statement - (FICA) Federal Insurance Contributions Act


Almost any entity that holds power or is protected in some fashion can renege on a deal in many ways... from smoke and mirrors reduction techniques to balance the books... all the way up to just defaulting and ending the program to balance the books.


As long as the US is a viable nation.... our politicians will opt for smoke an mirrors. They would much rather smile at you while they administer the shaft and hopefully convince you that you somehow gained or benefited from it (i.e., they did you a great service or they championed your cause... using some oblique rationale)!

 

[Gumby]

you probably only have rights (in terms of money) to receiving the benefit.

Actually, the holding of Fleming v. Nestor is that you don't even have a right to be paid a benefit. It can be removed at the whim of Congress, but, as you note, they likely would prefer to use subterfuge to accomplish their goals.

 

[Koolau]

FWIW, I'm looking at waiting until 70, taking advantage of whatever spousal "gaming" I can pull off and (in the interim until 70) lowering my "qualified" stash so that RMDs will be lessened when SS kicks in. This is a tax strategy as well as a "gaming" strategy. Whether it works out in the end is questionable since the rules are "more like guidelines" to our Congress. I won't know if it was a good idea until it is too late. The good news is that I don't need the SS right now to survive. Hope that's not held against me at 70. After all, many of us on this forum are "the rich" that everyone wants to go after to "fix" the deficit. As pointed out by others, the "rich" are now paying tax on 85% of their SS. Naturally, YMMV.

By the way, I appreciated Zero's honesty about what means testing should be. To paraphrase: Anyone making 10% more than I should be means tested.

 

[chinaco]

Actually, the holding of Fleming v. Nestor is that you don't even have a right to be paid a benefit. It can be removed at the whim of Congress, but, as you note, they likely would prefer to use subterfuge to accomplish their goals.

I am a little confused. Could you elaborate a little more.

Are you are saying the house of representatives can take it away without going through the normal legislative process.... just kill the program? I assume you do not mean they could arbitrarily red line a particular person... (i.e., No SS for Gumby)!

 

[Gumby]

I apologize if I was unclear. Yes, Congress would need to pass a bill ending SS for everyone, and the President would have to sign it into law. Incredibly unlikely to ever actually occur, but it is possible. And the Fifth Amendment would be of no help in that situation.

To further elaborate, Nestor was a Bulgarian immigrant who was deported. Under the Social Security Act of 1935, if you were deported, your SS benefits terminated. Nestor contended he had a vested property right in SS payments, since he had paid into the system and that, under the Fifth Amendment, the government could not take his property. The Supreme Court disagreed.

Here is the decision:
http://supreme.justia.com/us/363/603/case.html

 

[chinaco]

I apologize if I was unclear. Yes, Congress would need to pass a bill ending SS for everyone, and the President would have to sign it into law. Incredibly unlikely to ever actually occur, but it is possible. And the Fifth Amendment would be of no help in that situation.

To further elaborate, Nestor was a Bulgarian immigrant who was deported. Under the Social Security Act of 1935, if you were deported, your SS benefits terminated. Nestor contended he had a vested property right in SS payments, since he had paid into the system and that, under the Fifth Amendment, the government could not take his property. The Supreme Court disagreed.

Here is the decision:
FLEMMING V. NESTOR, 363 U. S. 603 :: Volume 363 :: 1960 :: Full Text :: US Supreme Court Cases from Justia & Oyez

Interesting. Here is the ssa overview of it.

Social Security Online History Pages


That change to the law happened during the McCarthy era (at the height of fears about communism)...

They apparently wanted to send a message (political statement and instill fear in others who might be inclined toward to being a political threat or anarchist in this country.... i.e., communist).

It looks like it applies to nationalized citizens and residents that qualify for SS and ran afoul of the government or committed felonies and consequently are deported.

It does not seem to apply to US citizens by birthright.

However, it appears that people that are incarcerated (in jail) for the commission of a crime are not paid while in jail.

What Prisoners Need To Know


Learn something new everyday... Who 'da thunk it?

 

[ziggy29]

I apologize if I was unclear. Yes, Congress would need to pass a bill ending SS for everyone, and the President would have to sign it into law. Incredibly unlikely to ever actually occur, but it is possible. And the Fifth Amendment would be of no help in that situation.

Yeah, try telling someone who is, say, 50 years old and paying into it for 30 years that she gets *nothing* for all those years of contribution.

We're already starting to see a growing unrest among the struggling middle class, and if you wanted to see it explode into something the "political aristocracy" (for lack of a better term) doesn't want to see, try pulling something like this. They need to throw just enough bones to the masses to keep them mollified.

It's entirely possible that at *some* point they could phase out the program and provide some adjusted benefits on a sliding scale for those who have paid in for decades, but "nothing for you" regardless of how long you paid in is sure to be a non-starter.

 

[Zero]

I must have been foolishly naive in my 30s to 50s because I thought that my SS contribution was buying me a retirement pension. And you see lots of folks still very confident in SS and willing to wait till 70. For me that is 8 years of watching the SS system take more and more of the benefit away.

Here is my prediction after reading some articles on the subject.

1. FRA will go to 67 in one step likely earlier than now planned, say 2020.
2. FRA will then increase at 1 month/year until it reaches 68.
3. COLA will be changed to Superlative"chained" COLA which is usually about .3% lower.
4. Tag a person's benefit calculation to price increases and not wage increases.
5. Require workers to fund a retirement account independent of SS.
6. Allow SS benefits to be taxed on 100% of SS when AGI exceed 3 times the poverty level.

All of that would fly under the radar of the general public and they'd follow along like sheep, bleating contentedly.