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11 Social Security Mistakes People Make

A man examines his Social Security paperwork.
Photo by Jim McGuire via Getty Images.

The hits just keep on coming. The Internet hits for Larry Kotlikoff and his Social Security Secrets, that is. We’re still getting tens of thousands a day and wave after wave of inquiries for Larry, some of which he’s been gracious enough to answer here on Making Sen$e. Friday is our third installment of “Ask Larry,” and appreciative as I am, I want to take issue with his next-to-last answer to “Humanistic” about the system’s reason for being. Even though Larry’s joking, it’s ridiculous and even dangerous to suggest that Social Security was designed to drive us mad. (You might check out the question and Larry’s answer before continuing to read this introduction.)

Like every other piece of complex policy in a complex, highly politicized economy, Social Security has evolved in ways that are often confusing — bedeviling, even. Like the tax code. Like the criminal justice code. Like Dodd-Frank. Ever look at a compliance guide for the Americans with Disabilities Act?

Making Sense

To put it plainly, we’re a nation of laws and rights. They’re constantly changing with changing times, changing mores, changing technology. In the process, they become more fine-tuned, more complicated, more Byzantine even and, as a result, often more infuriating.

There’s this fantasy that laws and policy can be made simple. But tell that to your neighbor when she contests your right-of-way. Tell it to the inmates at Guantanamo or to Julian Assange. Tell it to someone whose baby has been poisoned by lead paint from an unregulated toy made in China. Tell it to the stockholders of a corporation that’s gone bankrupt by making deals it never publicly revealed. Sure, ours can seem like an “overly litigious” society. But is there so much litigation in this country because our laws are so complicated? Might it not be that our laws are so complicated because of all the litigation, all the insistence on our widely heralded competitive advantage, “the rule of law”?

Larry Kotlikoff is a dear and respected friend. His retirement software, ESPlanner, is widely considered state-of-the-art and can be accessed, in its basic version, for free. And he’s been his usual generous self to Making Sen$e and our audience with his time and savvy. But policy making is a tough enough job without snipers as wise as he generally is. To the extent that Social Security is in trouble, it’s because that, as Larry himself has implied for many years, we want its benefits, but — surprise! — we don’t much like paying for them. To the extent that Social Security is a hard-to-navigate system, it’s because we are constantly tempering what we feel is fair with what we think we can afford and because writing laws and regulations is really hard, never-ending work.

Larry will respond to this critique next week.


(Larry’s answers are also directed at our new PBS partners at Next Avenue.)

Questions may be edited for clarity and style.

Jo: Six months before my 70th birthday, I began my application for Social Security Retirement Insurance Benefits with a telephone interview. Before gathering my information, the interviewer asked me why I had waited so long to apply for benefits. I told him that I was waiting until age 70 in order to receive the highest possible monthly rate. He said immediately that I could have been receiving spousal benefits for almost four years before this. I told him that I had not been informed in any way that I was eligible for these benefits. He said: “We dropped the ball. You should have received a letter.” I was, of course, very upset at this news. He then told me that he would be able to grant me benefits for the previous six months once my application was complete. Is there anything I can do to recoup the approximately $30,000 I lost because I did not know about this benefit?

Laurence Kotlikoff: I feel very badly about this. This system is almost designed to get people to make the wrong decisions. I doubt you’d have any standing in court to sue Social Security on this, but it might be worth: a) calling the Office of the Actuary in Baltimore; and b) discussing this with an attorney. This is the first I’ve heard that they actually send out a letter about getting spousal benefits. If the agent checked and can verify that no letter was sent to you when it was supposed to be sent, that might permit Social Security to make up the loss in benefits. Keep me posted.

Theresa: I am almost 62 and my spouse is 63. We were both planning to wait until full retirement age — 66 — or maybe until age 70 before starting to collect our Social Security benefits. However, we are concerned that there may be legislative changes in the Social Security eligibility in the next two years that could affect our benefits before we file three to eight years from now. We are now both thinking about entering the Social Security system using a file and suspend application. Our thought is that we will we then be “grandfathered” in the current Social Security system eligibility rules. Is this a feasible strategy?

Laurence Kotlikoff: I don’t think you should worry about Social Security changing the rules on people your age. That’s almost unthinkable. My guess is your best strategy is to wait until full retirement age, and have you take spousal benefits then, while your husband files and suspends, and then both of you take your retirement benefits at 70. But if you or your husband had a very low earnings history, it might behoove that person to take retirement benefits starting now and a spousal benefit starting at full retirement age.

Tom: My wife and I will be 62 in January and I have the higher lifetime earnings. We have been advised to do the following to maximize our Social Security benefit: I should file and suspend for early retirement benefit at age 62 and my wife should begin collecting her spousal benefit at age 62; at age 70 I should begin collecting my enhanced benefit and my wife should switch from a spousal benefit to her enhanced benefit. Does this strategy make sense?

Laurence Kotlikoff: No, it’s very bad advice. What’s the source? First of all, you can’t file and suspend until you reach full retirement age. Second, your wife can only take a spousal benefit at age 62 if you are taking a retirement benefit. That would mean you would receive a reduced retirement benefit for the rest of your life. Moreover, if she is able due to your early retirement to take spousal benefits early, she will be deemed to be applying for retirement benefits early as well. So you’ll both be stuck with permanently getting reduced retirement benefits, which is the precise opposite of what you seek.

Dorothy: My dad has been collecting Social Security since he turned 65 five years ago. My mother will retire in two years at age 65. Reading these rules I am inclined to have her postpone her benefits for a few years. What are the important intervals (two years, five years, ten years) she should consider when doing this, in addition to any spousal benefits she can collect?

Laurence Kotlikoff: It may be best for your mom to wait until full retirement to start collecting a spousal benefit and wait until 70 to start collecting her retirement benefit. But this may be dominated by having your mom take her retirement benefit right away and permit your dad to collect a spousal benefit.

Computer Stuff: My wife is a retired Massachusetts teacher drawing her Massachusetts Teachers’ Retirement System checks. She therefore has not had Social Security withheld during her career. I have been drawing a normal Social Security benefit for myself for five years. Can she receive a spousal benefit through me?

Laurence Kotlikoff: Yes, but the Government Pension Offset provision may reduce her spousal benefit to zero.

Kristina Anderson: Originally, Social Security was supposed to be voluntary. Is there any way to keep it that way in one’s life nowadays?

Laurence Kotlikoff: No.

Michael Carrillo: I am on disability as a single person. What happens when I reach retirement age? Does it roll over?

Laurence Kotlikoff: Yes, it rolls over.

Yogadog: I started my Social Security payment at age 69. My wife is now 59. We had planned on having her taking spousal support at age 62 and delay taking her Social Security until she is 66-and-a-half. Is this a good strategy? I do not pay Part B because my wife has good health insurance. She plans on retiring at age 63 or so.

Laurence Kotlikoff: This isn’t a feasible strategy. If she takes her spousal benefit at 62, she’ll be deemed to be taking her retirement benefit at that age as well. The best strategy is likely for her to wait until full retirement age to take her spousal benefit and then take her retirement benefit at 70.

meinc2: I applied for Social Security when I turned 62, just to get into the system. I knew I’d be working and not be eligible for benefits for several years to come. Was that a good decision or a bad one?

Laurence Kotlikoff: Generally it’s a bad decision to take benefits early unless you are a low earning spouse. If you lost lots of benefits due to the earnings test, that’s a good thing, because Social Security will adjust your reduction factor when you hit full retirement age based on the number of months of lost benefits. Ideally, you’ve lost all your benefits, are now at full retirement and can now suspend your benefit until 70 and end up with the maximum benefit possible.

If you have a spouse, the answer changes. But the general answer is you made a decision to “get into the system” rather than to get the most from the system — and that was bad decision making.

Humanistic: Why was Social Security started in the first place?

Laurence Kotlikoff: To make sure nobody starved in old age and, apparently, to drive us completely mad and turn us all into Tea Partyers. (I’m not there yet, but my Lord …)

MRW: I have a follow-up question to mediaspecialist‘s. What about a situation where one spouse is in a job that is exempted from paying into Social Security and whose retirement plan is a 401(a) and 403(b) — not a pension. Does the Government Offset Provision apply there, too?

Laurence Kotlikoff: Yep. Lump sum payments are, by the way, also used to figure the GPO.

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions

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