Important Changes in New Two-Year Budget Agreement
According to a report in today’s (10/29/15) Wall Street Journal on page C1, the two-year budget agreement, passed by the House of Representatives on October 28th and headed to the Senate will eliminate the ability of social security recipients to elect and suspend benefits at age 66 (described below under Take Advantage Of Spousal Benefits At Age 66) and have their spouse claim spousal benefits while continuing to benefit from delaying their own social security benefits until age 70.
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I purchased and read the book Get What’s Yours – The Secrets To Maxing Out Your Social Security after seeing a generally favorable book review. The authors are Laurence J. Kotlikoff, Philip Moeller and Paul Solman; respectively an economics professor at Boston University, a journalist who writes about retirement for Money and the PBS website Making Sen$e and a business and economics correspondent for PBS NewsHour.
In an effort to make the details of social security entertaining and approachable, I thought the authors relied on somewhat tortured personal anecdotes and repeated and repeated key points, indicating in my view a condescending attitude toward their readers. The book nevertheless has some very useful information for those trying to assess their best options for Social Security and some helpful cautions.
Key points include:
Know The Basic Facts and Terminology – For most baby boomers (those born between 1946 and 1954) 66, not 65, is now the “Full Retirement Age” and 70 is the “Maximum Retirement Age”. You can elect to begin collecting Social Security for retirement as early as 62, but if you do your monthly distributions are reduced by 25% of your full retirement benefit at age 66. Your benefits will grow by 8% of your full retirement benefit per year if you wait from age 66 to age 70. The book explains a lot of other Social Security terminology, some of which may be critical to you maximizing your benefits, and also presents a lot of information on survivor, spousal and disability and dependent child options under Social Security. The Social Security website ssa.gov is also full of information.
View Social Security An Annuity To Protect Against Exhausting Other Assets – One of the great benefits of Social Security is that the payments last as long as you live and may provide survivor options to your spouse and children. The authors argue, and I agree with them, that assuring yourself a higher annual income from Social Security for as long as you live late in retirement, when there is a chance you might exhaust your other resources, is more important than starting benefits early, unless you have no other retirement income available to you or know for certain that you will die early.
The Financial Incentives To Delay Claiming Benefits Are Compelling – If your full retirement benefit at age 66 were to be $1,500 per month, your benefit if you claim benefits early, beginning at age 62, would be only about $1,125 per month. By starting benefits at age 62, you would get four more years of payments, totaling $54,000, than waiting until age 66. But by waiting for the higher payment you would receive $31,500 more in total benefits before inflationary adjustments if you were to live to age 85. More important, is that by waiting you would have a substantially higher annual income, $18,000 vs. $13,500 before inflationary adjustments, late in life when there is chance your other forms of retirement savings are exhausted and inflationary adjustments will magnify this difference over time.
Wait Until 70 To Take Social Security Benefits If You Can – Using the same example of a $1,500 monthly retirement benefit at age 66, by waiting to age 70, rather than starting retirement benefits at age 66, you would boost your annual retirement income to approximately $1,980 per month, $23,760 annually (by approximately 32% compare to your standard age 66 full retirement benefit). Since these figures would be adjusted for cost of living, the absolute differences between the lower and higher figures would be even greater on a post-inflation basis.
Take Advantage Of Spousal Benefits At Age 66 – One of the key opportunities for maximizing your Social Security benefits concerns the Spousal Benefit. You will want to consult the book or another resource for details but in essence if one spouse is several years older than the other and was the higher wage earner, it is possible for the older, higher wage earner to file for Social Security retirement benefits at age 66 and suspend benefits for up to four years until age 70 in order to create the opportunity for the lower wage earning spouse to claim restricted spousal benefits (50% of the higher wage earners full retirement benefit) without triggering retirement benefits for the higher wage earner and without reducing the growth in the higher wage earner’s social security benefit between age 66 and 70. There are penalties, if this maneuver is started before the younger spouse reaches age 66.
Evaluating Your Options – There are a multitude of potential Social Security benefits and options for getting them. To help you understand the specific Social Security options available to you, the lead author, Laurent Kotlikoff , also offers an online Social Security software planning tool at maximizemysocialsecurity.com, which gets good press reviews but which I have not tried. At times the book is only a promotional tool for the software playing up the risks of making an error in claiming Social Security and warning against relying on the Social Security Administration for advice. Anecdotal feedback I have gotten from other Social Security recipients seems much more favorable about the advice available from Social Security offices than the impression you get from reading Get What’s Yours – The Secrets To Maxing Out Your Social Security but the book is a useful resource.