Significant changes to social security claiming rules?

[Rich Carreiro]

If I'm reading this correctly, does this mean that lots
and lots of "here's precisely how to apply for social
security" articles that have been written over the years
are now pretty much entirely inapplicable, at least for
people born after Jan 1, 1954?

http://finance.yahoo.com/news/social-security-changes-hit-couples-125929117.html

--
Rich Carreiro rlc-...@rlcarr.com

[JoeTaxpayer]

On 11/6/15 1:09 PM, Rich Carreiro wrote:
> If I'm reading this correctly, does this mean that lots
> and lots of "here's precisely how to apply for social
> security" articles that have been written over the years
> are now pretty much entirely inapplicable, at least for
> people born after Jan 1, 1954?
>
> http://finance.yahoo.com/news/social-security-changes-hit-couples-125929117.html

My wife is older than I am. I planned to take the spousal benefit at 66,
my full retirement age, when my wife is 70+. Her SS forecast is for
$3500/mo, so mine would have been $1750/mo while I let my benefit grow
for those 4 years before flipping to my own benefit. $84,000 congress
just stole from me. About $57K if we calculate present value.

The good news/ bad news? It seems that relatively few people did this.
Most claimed benefits as soon as they could, and didn't use any strategy
for maximizing benefits. The bad news, is that this was perceived as a
tool of the rich. The comments in many news articles for this change in
benefits remarks that "it's good to see this taken away from the 1%,"
but what the posters don't get is that this strategy was possible for
most couples.

[David S. Meyers, CFP(R)]

On Saturday, November 7, 2015 at 11:50:06 AM UTC-8, joetaxpayer wrote:
> On 11/6/15 1:09 PM, Rich Carreiro wrote:
> > If I'm reading this correctly, does this mean that lots
> > and lots of "here's precisely how to apply for social
> > security" articles that have been written over the years
> > are now pretty much entirely inapplicable, at least for
> > people born after Jan 1, 1954?
> >
> > http://finance.yahoo.com/news/social-security-changes-hit-couples-125929117.html
>
> My wife is older than I am. I planned to take the spousal benefit at 66,
> my full retirement age, when my wife is 70+. Her SS forecast is for
> $3500/mo, so mine would have been $1750/mo while I let my benefit grow
> for those 4 years before flipping to my own benefit. $84,000 congress
> just stole from me. About $57K if we calculate present value.

Here's the best summary of the changes and implications I've found:
<https://maximizemysocialsecurity.com/updates-based-bipartisan-budget-act-2015>

(I use their software when optimizing and running scenarios for clients).

I'm not sure I'd characterize it as "stealing" -- since this "bonus" marriage benefit only appeared unintentionally about 15 years ago and was never really intended to be part of social security.

And contrary to a lot of the article about this characterizing it as a "popular" strategy, it's been an incredibly *rarely* exercised strategy. It's mainly of use to upper-middle income married folks, and even within that subset of the population, only a tiny tiny subset knew about it -- mainly folks who had engaged professionals (like myself) who worked up the numbers for them.

As it is, about half of folks claiming SS benefits do so at 62 -- which is almost always not the right thing to do (if one has any other assets or income to draw on in order to postpone and increase future lifetime benefits).

Only about 2% of folks wait until 70.

> The good news/ bad news? It seems that relatively few people did this.
> Most claimed benefits as soon as they could, and didn't use any strategy
> for maximizing benefits. The bad news, is that this was perceived as a
> tool of the rich. The comments in many news articles for this change in
> benefits remarks that "it's good to see this taken away from the 1%,"
> but what the posters don't get is that this strategy was possible for
> most couples.

It's been *possible* for most (two-earner) couples, but it wasn't taken advantage of by the vast majority of them. There have been some more articles (and even books) which made the public more aware of it over the last couple of years, but even with all that -- only the tiniest subset of the population knew about it or how to take advantage of it. Overwhelmingly, those who did use these strategies were folks with professional advisors.

When planning for clients, I've never included this (other than for folks *already* taking it) as anything other than bonus money. I.e., don't count on it, but if you do take this, it's "extra".

There really never was any justification for this loophole. SS already benefits married folks substantially over comparable earning singles and this was just total extra. (In fairness, SS benefits married, single-earner families a lot more than married couples where both earn approximately equal money -- but even then, there's still some marriage benefit).

[JoeTaxpayer]

On 12/9/15 6:33 PM, David S. Meyers, CFP(R) wrote:

> I'm not sure I'd characterize it as "stealing" -- since this "bonus" marriage benefit only appeared unintentionally about 15 years ago...

Hyperbole. But it's how I felt when I read this news.

> And contrary to a lot of the article about this characterizing it as a "popular" strategy....

No, I knew it wasn't popular, but I didn't realize how very rare it was.

> As it is, about half of folks claiming SS benefits do so at 62 --
>

> Only about 2% of folks wait until 70.
>

>Overwhelmingly, those who did use these strategies were folks with
professional advisors.

I suppose ignorance is bliss. In this situation, anyway. This strategy
has been on my radar for the last 5 years, and especially 3 years ago
when my wife and I were both retired. Whatever the lost dollars, it
impacts 4 years, and is a blip in the financial plan.

All of your points go a long way in explaining why there was no uproar.
While this benefit could have potentially been a perk to a high
percentage of couples (even more with passing of gay marriage laws), in
reality it turned into a loophole (ok, I said it) just for the rich or
those in the know. I'm mostly self taught, no pro involved, but I
understand the average person doesn't read up on this topic. So I'm out
$80K, and no sympathy. Time to move on.

[David S. Meyers, CFP(R)]

> reality it turned into a loophole (ok, I said it) just for the rich or
> those in the know. I'm mostly self taught, no pro involved, but I
> understand the average person doesn't read up on this topic. So I'm out
> $80K, and no sympathy. Time to move on.

I know. Sorry, Joe. It'd have been quite a valuable strategy for me eventually, too.

As it is, I get so many folks coming to see me who are skeptical that they'll ever get *any* SS at all and I have to spend almost as much time convincing them they'll get *something* as I spend explaining to others how to optimize their benefits.

:)

[David S. Meyers, CFP(R)]

A great WSJ/blog post by Alicia Munnell about this:

<http://blogs.wsj.com/experts/2015/12/02/why-recent-social-security-changes-make-sense/>

As you'll see, again, the strategies which were shut down were (a) new (about 15 years); and (b) never part of the original design or intent of the program; and (c) mainly benefited the wealthy and highly informed (i.e., folks who higher professionals).

In balance, here's a piece by William Reichenstein which argues the opposite (and, in my opinion, not very convincingly -- although I have enormous respect for him and have referred to his expertise in maximizing benefits and using these strategies many times):

<http://blogs.wsj.com/experts/2015/12/02/why-recent-changes-in-social-security-are-unfair/>

His example (comparing a two-earner couple to a one-earner couple) is not especially relevant. The one-earner couple makes out like a bandit, and that's part of the original design -- to subsidize a stay-at-home spouse. The two-earner couple *never does worse than two single people* and in almost most cases does a good bit better (because of the value of survivor benefits).

The rest of his argument -- that SS is, to a certain extent, a wealth-redistribution system -- is not very convincing. It's *always* been that, and by design. That's why the benefits formula has always been highly progressive (rich get "back" a lot less per dollar paid "in" than lower-income folks). That's nothing new at all.