Social Security Questions Answered
Over the years, I’ve gotten A LOT of questions about Social Security.
After all, the program is essentially an ongoing series of tax hikes, expansions, tweaks, benefit reductions, and other “fixes” that amount to a labyrinth of rules, regulations, and complicated decision trees.
Some of these topics also foster tons of emotion.
For example, a woman named Sue once told me:
“I personally believe that Social Security should return back to its original intent — that of providing for current workers who are contributing into the fund while they are working so they can pull money from it when they retire from working. I disagree that money should be denied to that worker’s aged spouse who did not work. Most working spouses work to not only provide for themselves in their old age, but also for their spouses. I WILL say that I believe that Social Security should NOT be used to pay benefits to the disabled — there should be other ways to meet their basic needs.”
This point of spousal benefits is certainly a hot-button topic.
In a previous article, I said all spouses should qualify for survivor benefits but should NOT receive their own separate checks while their contributing spouses are still living.
At some point, I will devote an entire piece to why I think this (including some eye-opening examples).
For now, let’s just say that providing extra spousal benefits to living couples with just one earner is both mathematically infeasible and grossly unfair.
A reader named Lynda agreed but had one other group of benefit payments that should be revoked before anything else:
“The first thing to go should be minor’s benefits for parents who are still living. Just because a man marries a much younger woman and produces a child, that child should not be eligible for Social Security benefits. What a travesty. And they wonder why the Social Security system is failing?”
Another reader named Sharon also said Washington should look at “Payments to legal immigrants who have never paid into the system (up to seven years — thanks LBJ).”
I agree that these are the kinds of areas that should be examined before anything else.
Or at the very least, THESE are the only types of situations that should be subjected to means testing.
Speaking of which, a reader named David told me:
“Nilus, you wrote that means testing for Social Security is a bad idea, to paraphrase. I would argue that, in fact, Social Security already has a means test built in by the sliding scale of how much of it is taxable. I am inclined to think this is a good idea. For context, I am 71, began collecting Social Security at age 66, and I am still working full time.”
Yes, that’s right. The taxation of benefits is essentially a form of means testing…
And I’m against it.
I know far too many retirees who are being subjected to this stealth benefit cut… and believe me when I tell you that they are not living in the lap of luxury.
They paid in via taxes for decades. They shouldn’t now see their distributions taxed on the way back out.
As I explained in a previous Roadmap article, the taxation of benefits is also a fairly modern idea, first enacted during changes made to the system back in 1983.
Back then, it was estimated that only 10% of retirees would be subject to the taxes.
Of course, the income levels established at that time have yet to change for inflation.
Neat trick, huh?
I think we can all agree that a couple earning $32,000 in retirement income in 2018 is hardly wealthy.
I think we all should also agree that because of the system’s vagaries, it’s perfectly reasonable to use Social Security’s Byzantine rules to their personal advantage.
So here are a few questions related to that…
“I will be 65 in June but not planning on retiring for a long time! I’m divorced and as I understand it, I can collect half of what my ex’s SS would be when I’m ready to collect. Just trying to understand everything.”
Were you married at least 10 years? If so, and you have not remarried, you qualify for benefits on your ex-husband’s record.
From there, yes, you have the choice to file for either your own benefit or half of his.
Moreover, unlike married people, you don’t have to wait for him to file for his own benefits. In fact, since you’re above age 62 you could file now if you wanted.
However, the smarter strategy sounds like it might be filing a restricted application. You would just have to be at least 66 to do that.
“I know laws changed a few years ago. What options remain on the table these days?”
Social Security is a complicated system so there’s no comprehensive way to answer this question in a short column.
One thing to remember, though, is that EVERY American still has the right to delay taking their own benefits until age 70.
While the value of doing so will vary substantially based on your own work record and lifespan, I’ve run some hypotheticals that show delaying benefits could easily amount to an extra $9,600 or more in future income for someone using the strategy.
How do I arrive at that figure?
Well, the Social Security Administration will raise your future payments for every MONTH that you delay.
Annually, that will amount to an 8% increase (plus any cost-of-living adjustments).
The math differs for every person; but consider someone who’s age 66 and has the choice of collecting $2,000 a month for the next 12 months or an additional $160 every month starting a year from now (i.e. the 8% annual increase for delaying benefits).
The $24,000 upfront seems like the better option at first. Especially since it takes 12½ YEARS of payments to make up for that missed $24,000.
Yet, according to government statistics, the average American at age 66 will live another 17½ years.
In other words, you stand a very good chance of collecting at least another five years of those extra $160-a-month payments… which comes out to another $9,600 in your pocket.
“What can I do if I want to change my current Social Security strategy or filing status?”
I used to recommend a little-known way to pay back everything that had already been collected and re-file, but that was also taken off the table by lawmakers a few years ago.
These days, you can only change your mind within 12 months of originally filing for benefits through form SSA-521. You’ll have to pay back all benefits already received, including spousal money. You can also only do this once.
For more details on these strategies and others, simply claim your free copy of my new book – The Income Bible – by clicking here.
To a richer life,
Editor, The Rich Life Roadmap