Wednesday, May 10, 2017

But Social Security Never Told Us ...

Please don't infer that if you were born after 1953 you can stop reading, because this is about policy and promotion and a few other relevant topics as well.

But I'll bet you didn't know what I'm going to tell you either; I found out, literally, just in time.

We all put a big percentage of our income into the Social Security general fund, or whatever it is called, about 15% if you are self-employed.  It is not a "fund for Bob" made up of only my contributions and the interest on them; it is one big pile of cash contributed to by the nation of Bobs and Janes, supposedly to fund our retirement income but subject to perpetual looting by Congresses over the years.

Over the years, the amount we submit goes into a mystical computation that spits out how much we would get if we started taking our Social Security retirement at one of three ages -- the first year we're allowed to take benefits (in my case, "62" based on the year of my birth), then the "full retirement age" ("66" for me), and then age 70.

Those are significant, in that (I'll use my specific ages) if you start the benefit at 62 you can start collecting, sure, but you cannot earn income or it will cut back your benefit.  At 66 you can work without that reduction; but every year you wait to start after that the monthly benefit goes up 8% until age 70, when you might as well start collecting because the benefit never goes up thereafter.

Tomorrow I turn 66, and in that 66 is a milestone as noted above, I received a letter from Social Security telling me to consider if it was beneficial to me to turn on the benefit or wait until age 70.  I didn't see any other options presented; either (A) start now, (B) start at 70, or (C) start sometime between when the benefit grew to an acceptable level.

When I got the letter, I did two things, and to an extent both of them helped.

The first was to build a spreadsheet and project out 20 years to see when the two options (66 or 70) equaled out, were I to start collecting now but shove it into an account earning a fixed percentage rate.  I didn't bother subtracting out a tax rate, simply because it would be the same in the age 66 and age 70 scenario.

I determined, roughly, that at a 3% interest rate, the two options didn't equal until 2036, while at a 2% rate they equaled in 2035.  Since I felt I would need the higher rate particularly in the next 20 years, I decided that it made more sense to wait to start collecting.

Then I did the second thing.  I contacted my financial advisor, who handles our retirement affairs and without whom we do nothing financially of any real size.  She is affiliated with an organization founded by a man whom I respect greatly and whose books are staples of financial advice in our home.  I gave her my age-66 and age-70 monthly payments from Social Security, and asked her what she would have us do.

No surprise; when she called back she agreed that it made more sense to wait until I was 70 to turn on the retirement payments.  Then she asked me "but what about the spousal benefits?".

"The what?", I asked.

Well, as it turned out, it was the thing that somehow had not been in the letter from Social Security as I mentioned (I just read it again to check -- nope, not there).  "Spousal benefit" refers to an obscure provision of Federal law that, when discovered by Congress, was stopped for people born after 1953 (roughly).  Essentially it says that, when you reach "full retirement age", you may start taking a benefit based on your spouse's benefit amount, that does not affect your ability to wait until age 70 to take your own benefit.

Lest that sound complicated, try this.  You're a 66-year-old guy, and say that if you were to take a benefit at age 66, it would be $2,000 a month, but if you waited until age 70 to start, it would be $2,700 a month.  You decide it is better to wait, so you opt not to start collecting.

You're married, and your wife is already taking a benefit of $1,500 a month.  Instead of taking your own benefit at 66, and instead of just waiting until age 70 and getting zero for four years, you are allowed to take a spousal benefit, starting at 66, that is one-half of her benefit, or $750 a month.  You can take that until age 70 and then switch over to taking your own retirement, and getting the $2,700 that would be your monthly age 70 benefit.

Somehow that didn't end up in the letter of options I got as a birthday letter from SSA.  So, had I not contacted my advisor, and not discovered that little provision until the year 2021, I would have missed out on 48 months of money I was legally entitled to.  In the case of the fictional example above, which is a typical payout amount but is not our own family's situation, that's about $36,000 over four years.

While our situation is different, the amount is on the same order of magnitude, and I've no more interest than you in giving $30,000 or more to the government, or not taking $30,000 the law entitles me to.  But I sure would have liked it if the letter asking me to start taking benefits had something like this:

"Important -- if you are married and your spouse is collecting a Social Security retirement benefit (or is about to), and you are considering delaying your own benefit until age 70, there is another option.  When you reach full retirement, you can choose the spousal benefit, which would pay you one-half of your spouse's benefit.  We would pay you that, and it would not affect the benefit you would receive at age 70.

"If you want to choose the spousal benefit, please go to, and choose Spousal Benefit Option to register and begin to receive your spousal benefits quickly.  If you choose to start your own benefit instead, you do not need to worry about the spousal benefit option."

So that seems so easy to do.  Don't we kind of wonder why it is not presented to 66-year-old Americans as an option in these routine letters?  It can't be that they want to keep it a secret, can it?  I mean, Barack Obama's administration can advertise in Mexico to get people to come here illegally and get welfare, schooling and health care, but the Obamists left over in HHS can't tell our own senior citizens that we're entitled to a benefit?

Sure, I thought the same.  But it's our money!

Copyright 2017 by Robert Sutton
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