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Social Security rules are complicated and change often. For the most recent “Ask Larry” columns, check out maximizemysocialsecurity.com/ask-larry.
Boston University economist Larry Kotlikoff has spent every week, for more than two years, answering questions about what is likely your largest financial asset — your Social Security benefits. His Social Security original 34 “secrets”, his additional secrets, his Social Security “mistakes” and his Social Security gotchas have prompted so many of you to write in that we feature “Ask Larry” every Monday. Find a complete list of his columns here. And keep sending us your Social Security questions.
Kotlikoff’s state-of-the-art retirement software is available here, for free, in its “basic” version. His new book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security Benefits,” (co-authored with Paul Solman and Making Sen$e Medicare columnist Phil Moeller) was published in February by Simon & Schuster.
Watch Larry explain how Paul and his wife could collect an extra $50,000 in Social Security benefits:
Last week economist Alicia Munnell wrote the following in a MarketWatch column:
The president’s fiscal-year 2015 budget included language to “eliminate aggressive Social Security-claiming strategies, which allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits.” This is a great idea. Work that our center did more than five years ago showed that this option could cost Social Security as much as $9.5 billion annually, and that benefits go to those with the know-how to game the system.
In another column entitled “Let’s Close Down Social Security Gaming” she writes, “Today people are writing bestselling books about how to get the maximum out of Social Security.”
Alicia seems to be referring to my New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” which, as my byline indicates, I recently co-authored with NewsHour economics correspondent Paul Solman and journalist Phil Moeller. But is maxing out “gaming the system”? At the end of a broadcast story he did on Social Security for the NewsHour, Paul asked me if we were promoting “loopholes” in the Social Security rules. I replied that you could view it as a loophole but that on the other hand, couples who benefit from strategies like file-and-suspend pay a lot of taxes. And there are other loopholes in our tax system like the mortgage interest deduction, for example.
“Would it be fair for some of us to take it and others not because we didn’t know about it?” I asked. “I don’t see any reason why people shouldn’t get what is theirs, what they’re legally entitled to.”
Our fiscal system, in general, and Social Security, in particular, is an incredibly complex maze of entangled provisions, most of which were put into place in piecemeal fashion over the years. Saying that provision X is unfair because it benefits double-income earners and should be eliminated begs the question of whether all the other provisions in our fiscal laws that disadvantage them are also unfair. Our system is replete with positive taxes and negative taxes, which we call benefits. If you want to make the case that the system is unfair, you need to look at all the net taxes people in different situations are paying.
We have roughly 25 major fiscal systems at the federal and state levels (Food Stamps, Medicaid, Medicare, the Earned Income Tax Credit, the Child Tax Credit, the Alternative Minimum Tax, Supplemental Security Income, Transitional Aid to Families with Dependent Children, Obamacare, the New High Income Medicare taxes, the progressive Part B Medicare premium, the FICA payroll tax, progessive federal tax brackets, state income taxes, state and local sales taxes, federal and state estate and gift taxes, 12 different Social Security benefits, federal and state corporate income taxes, and the list goes on) that impact what we pay on net to government.
I’m in the process of doing research with Alan Auerbach, an economist at Berkeley, to put all of these programs together to understand the system’s true progressivity — how net tax rates differ across households of higher and lower means. I’ll be writing about our findings in this space in a few weeks, but for now let me assuage my dear friend Alicia with these words. “Telling people how to get what’s theirs” doesn’t game the system. Nor does taking all the benefits to which you were legally entitled, including the “free” spousal benefit using the file and suspend strategy (which you did), game the system. It’s not our jobs as individual citizens to make the system more equitable by paying more taxes or taking fewer benefits unless we can persuade everyone else in our shoes to do the same think, which we most certainly cannot. It’s our government’s job to do something that it’s yet to do — understand who is paying what on net with all fiscal programs put on the table. If this overall picture looks unfair, then it’s our government’s job to fix it.
And it’s the job of academics, like me and countless others, including my dear friend Alicia Munnell, to consider the overall picture before proposing major changes. Finally, even ignoring all the other fiscal policies, Alicia’s proposed “simple fix” of eliminating filing and suspending, and imposing deeming after full retirement age, would produce as many grievous inequalities as it fixes, including some that are effectively extremely sexist.
Richard — Concord, Calif.: I recently received my earnings record from SS and there are 2 years of income that don’t make sense. In this statement there are two columns: “taxed Social Security Earnings” and “Taxed Medicare Earnings”. Every year the two columns are identical except for two years where (1997) SS earnings are 0 and Med earnings are an amount that seems normal . The following year (1998) shows SS earnings that seem a bit lower than the norm but the Med earnings are more than double the SS earnings. The rest of the earning years match in both columns, before and after the two years above. SS requires a W-2 for each year in question before they will even consider that there may be an error. I don’t have W-2s that go back that far and SS says they aren’t responsible for keeping these records. IRS only offers copies of income statements that go back 4 years. How can I dispute this or at least get copies of my old W-2s to validate there is an error? Thank you in advance for any help you may be able to provide.
Larry Kotlikoff: I’m going to ask Jerry Lutz, former Social Security technical expert, to answer your question. I’ve not heard of this situation. The fact that have to keep decades of earnings records for the government is simply mind boggling.
Jerry Lutz: First, we need to consider whether or not Social Security’s records are wrong. Wages from some employers are subject to Medicare tax but not Social Security tax (e.g. federal employees who started working prior to 1983). Was there a change in your employment during the period in question that may explain the discrepancy? If not, I would try contacting my former employer to see if they still have copies of the W-2s. Social Security can accept secondary evidence of wages, but it’s unlikely that you would have kept any of those documents for this long. This is why the Social Security Administration recommends checking your earnings record for accuracy at least every three years.
Anonymous — Alexandria, Va.: There is a large age gap between me and my husband: he is 56 and I am 33. We have two children under the age of 6. I have not worked in several years, but will be working soon and will likely be earning a fairly high salary near the cap amount. What is the best strategy for us to maximize benefits? I am obviously a long way away from taking benefits, but we would like to plan ahead.
Larry Kotlikoff: When your husband is 67, in 11 years, your children will be eligible to collect a child benefit on his work record as long as they are under 18 or under 19 and still in high school. I’m presuming that neither is disabled. If one or both were disabled, having become disabled before age 22, they could collect child benefits at any age. At 67 your husband can file and suspend and permit the kids to collect child benefits. He can then restart his own retirement benefit at 70 at its highest possible value. You two may be eligible, depending on your earnings, for child-in-care spousal benefits (if one or both kids are under 16). But the benefits to the kids and possibly to you will be limited by the family benefit maximum. It may be better for your husband to file even earlier than full retirement age so he can activate the child and, potentially, child-in-care spousal benefit early. This will mean a reduced retirement benefit for him, but may maximize your household’s total lifetime benefits. Under this strategy, which I call Start-Stop-Start, your husband would stop (suspend) his retirement benefit at full retirement age (67) and then start it up again at 70.
Aaron — Woodland, Calif.: My mother is 80, still working, collecting Social Security since she was 62. She gets about $840 per month, which is not enough for her to live on without working. She was married to a fellow many years ago. They separated after a few years, but never actually got divorced. He remarried, without ever divorcing my mother, about four years after marrying my mother. My mom also remarried at some point in there, then divorced that second marriage after a few years. The first guy died in 2000 or so. His widow is collecting some kind of benefit on his record. Can my mom collect any kind of benefit from his record, given that she never got a divorce? I know its probably not within the spirit of the law, but she needs help, and the spirit of the law was also to make it so little old ladies don’t have to work when they are 80. I help her out a bit, and when she really can’t work any more, she will move in with me and my family, but that will mean giving up her home that she worked her whole life to own. I wish she could stop working and enjoy her retirement, her garden, and her surprisingly good health while it lasts.
Larry Kotlikoff: You should check with Social Security on this one, but her second marriage was probably never legal. This means she should be able to collect widow’s benefits from her first husband’s work record simply by presenting Social Security with a copy of her marriage certificate and his death certificate. Write back and tell us how this turns out. But be up front with Social Security. We don’t want your mom carted off to jail for fraud.
Anonymous: I am 63 years old and just applied for, and will start receiving, my deceased ex-husband’s Social Security survivor benefits. He died two years ago, age 66. The people at social security told me, that I would get substantially more on his earnings record than my own. We were married for 16 years. I never remarried. He did, but she is about one year younger than he. My question to pose to you is: will this benefit I receive continue until I die or does it change and will it impact any money his second wife gets? I am a bit confused about all of this. Thank you.
Larry Kotlikoff: I presume you were married for 10 or more years. What you receive has nothing to do with what his second wife receives. You may do better by filing right now for your own retirement benefit and waiting until 66 — your full retirement age — to take unreduced widow benefits. Whether this is optimal will depend on when your ex took his own retirement benefit. If he took it early, it may be best to take your widow’s benefit right now. This is due to the RIB-LIM formula I discussed in prior columns and that I and my co-authors discussed in our book. Highly precise commercial software can suggest when it’s best to take which benefit.
Teresa — Spartanburg, S.C.: My husband will be 66 this September, which is his full retirement age. I am 47. We have two children: a 20-year-old and a 13-year-old. My husband makes much more money than I do. He plans to work until age 70. Our plan is for him to file and suspend his benefits and then for me and our younger child to get spousal/child benefits. Are there rules on what we have to do with that money? We would like to put our daughter’s checks into a trust for her to use for college but someone said you could only let a child have $2,000 in savings from Social Security. I make about $31,000 a year and we want to maximize my husband’s check in order to help me later on. He makes about $80,000 a year.
Larry Kotlikoff: Your plan makes sense. What you will get will be limited by the family benefit maximum. Also, your oldest child is too old to collect unless he/she is disabled. If you are working, you may lose some or all of the child-in-care spousal benefits due to the earnings test. But your lost benefits should be reapportioned to the child benefit(s).
Laurence Kotlikoff is a William Fairfield Warren Professor at Boston University, a Professor of Economics at Boston University, a Fellow of the American Academy of Arts and Sciences, a Fellow of the Econometric Society, a Research Associate of the National Bureau of Economic Research, President of Economic Security Planning, Inc., a company specializing in financial planning software, and the Director of the Fiscal Analysis Center. Kotlikoff's columns and blogs have appeared in The New York Times, The Wall Street Journal, The Financial Times, the Boston Globe, Bloomberg, Forbes, Vox, The Economist, Yahoo.com, Huffington Post and other major publications.
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