Introduced as a New Deal program in 1935, Social Security has been a capstone after a career (or several) — and for many retired Americans, it is the difference between comfort and poverty. Knowing how to navigate and properly execute one’s retirement is imperative as 10,000 Baby Boomers reach retirement age every day. The value of making the “right decisions, at the right time” cannot be stressed enough.
Get What’s Yours: The Secrets to Maxing Out Your Social Security, is an approachable book that instructs readers on how to maximize gains, wade through the program’s 2,728-plus rules, and avoid unnecessary pitfalls when filing. The authors — Laurence J. Kotlikoff, Philip Moeller, and Paul Solman — are a trio of financial sherpas, guiding their audience through making sense of and money from their biggest retirement asset. Blending humor with expert advice, the authors illustrate how to profit from one of the most important decisions of your life—and get what the system owes you.
The following passage describes a unusual situation that illustrates just how complicated filing for benefits can get — even for a seasoned financial journalist.
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Even those of us who aren’t superrich, but have earned and saved a lot, view Social Security as a critical lifeline. We realize, after the Crash of 2008, that no assets — not our homes, not our bonds, and certainly not our stocks — are safe from life-altering declines. We realize that even our private pensions, if we have them, may hinge on our former employer staying in business and inflation not eroding the pension’s purchasing power. (It’s the rare private-sector pension that boosts payments to protect against inflation.) We also know that we could, with plausible breakthrough medical discoveries, live to 100 or longer.
But isn’t Social Security a bigger deal for the poor? Actually, it’s not. To be sure, Social Security benefits are a crucial lifeline for lower-income beneficiaries. And, yes, Social Security benefits rise less for higher earners than do their FICA tax contributions. But benefits do rise with both time and earnings and they involve very big sums.
Take, for example, a 60-year-old couple, who both stop working at that age, each partner having earned Social Security’s taxable FICA limit—the maximum taxable amount, starting at age 25. That maximum was $22,900 in wage income in 1979, when they began working; it’s $118,500 for 2015, going up every year in lockstep with the nation’s average wage increases. Running coauthor Larry’s maximizemysocialsecurity.com software, a 60-year-old couple who earned at or above the payroll tax ceiling their entire lives would get $31,972 each or $63,944 a year collectively if they began taking benefits at 66, which is their Full Retirement Age (FRA). (We will have more to say about the FRA and other official Social Security terms in Chapter 3, and key terms like this one also are explained in the Glossary at the end of the book.) If they deferred benefits until age 70, they’d get $42,203 ($84,406), which is 32 percent higher than their age 66 benefits, because for every year you wait, Social Security pays you a benefit that’s 8 percent higher than the year before, even before its annual inflation adjustment.
For such a couple, collecting Social Security at 62 represents a $1.2 million asset. In other words, you’d need a nest egg of $1.2 million to produce the same amount of annual income that you’ll get from Social Security, assuming you could safely earn 2 percent a year above inflation on your investments.
Now, $1.2 million is more than many upper-middle-income retirees have saved by retirement age. The net worth of a typical household headed by someone aged 65 to 69 is only a fourth of this amount and much of it is in the value of their home. And all you have to do is stay alive and those Social Security payments will keep coming each and every month—payments guaranteed by the United States government and protected against inflation. That’s because every January, you get, by law, annual benefit raises that equal the prior year’s rate of inflation.
Moreover, there is a huge amount of money at stake in maximizing one’s Social Security benefits. The $1.2 million valuation, large as it is, actually assumes our 60-year-old couple makes the wrong Social Security benefit collection decisions. It assumes they take their retirement benefits as early as possible and forgo cashing in on what are, to them, free spousal benefits like the one Paul took. If they make the right decisions, they can increase the value of their lifetime Social Security “asset” by more than $400,000, to $1.6 million!
This 33 percent increase may sound hard to believe, but it’s true. The couple just needs to apply for the right benefits at the right time, as Larry advised Paul and Jan to do. Simple enough. But figuring out what to apply for and when to do it is not simple. Indeed, Social Security is the most complicated “simple” program you’re ever likely to encounter
One more story, just to drive home the point of complexity. It comes from our Technical Expert, Jerry Lutz.
One day, while Jerry still worked for Social Security, a claims representative approached him with a question. A new claimant’s husband had died of a heart attack while they were having sex. They had been married for less than 9 months, the threshold for receiving survivor’s benefits from Social Security. But one of the exceptions to the 9-month duration of marriage rule involves “accidental death.” Up until then, Jerry had considered “accidental” to mean something like a car wreck. But his job was to research tough cases like this one.
So he searched the vast Social Security rule book and found POMS GN 00305.105, which describes an accidental death in part as follows:
A “bodily injury” occurs whenever the outside force or cause affects the body sufficiently to interfere with its normal function. The cause of the bodily injury is:
“External” if it originated outside the body. An external force can include an injury suffered due to weather conditions or exertion.
NOTE: By exertion we mean an activity that involves at least moderate effort for the average person. Routine activities, e.g., standing, do not constitute exertion for purposes of finding accidental death. Circumstances which more readily lend themselves to a favorable finding of accidental death include:
• an unexpected heart attack occurs during moderate exertion;
• an unforeseen event negates the voluntary nature of an activity, e.g., an exercise machine breaks down while exercising;
• some unintended, unexpected, and unforeseen result occurs during exertion, e.g., a fall or slip while running; or
• a crisis or sudden peril requires strenuous exertion.
“Moderate exertion”? Arguably. “Unintended” and “unexpected”? Indubitably. And so, based on the claimant’s testimony and her husband’s death certificate, widow’s benefits were eventually conferred, but the determination was anything but simple.
From GET WHAT’S YOURS: THE SECRETS TO MAXING OUT YOUR SOCIAL SECURITY by Laurence Kotlikoff, Philip Moeller, and Paul Solman. Copyright © 2015 by Laurence Kotlikoff, Philip Moeller, and Paul Solman. Reprinted by permission of Simon & Schuster, Inc.
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Copyright 2015 The National Memo