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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.
Larry Kotlikoff’s 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 now feature “Ask Larry” every Monday. Find a complete list of his columns here. We are determined to continue it until the queries stop or we run through the particular problems of all 78 million Baby Boomers, whichever comes first. Let us know your Social Security questions. Kotlikoff’s state-of-the-art retirement software is available here, for free, in its “basic” version.
President Barack Obama’s 2015 budget includes this provision:
…the Budget proposes 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.
No one seems to know what this means or whether it will take an act of Congress to enact whatever it’s referring to.
Isn’t our democracy just the greatest? We’re now at the point where we, the people, aren’t even being told what laws are being put up for a vote. Most likely, our representatives won’t know either if it comes to a vote. I say “if” because it’s possible the president will simply change Social Security benefit provisions through an executive order.
My guess is that the administration is going after the ability of married and divorced workers to receive full spousal benefits (equal to half of their spouse’s full retirement benefit provided he or she has filed for retirement benefits) between full retirement age and 70 while permitting their own retirement benefit to grow due to the delayed retirement credit.
Most likely, the administration will let high-income households collect a full spousal benefit, but somehow, deduct it from their retirement benefit once they start collecting it. This would add yet another level of unbelievable complexity to a system that could not be more complex and incomprehensible.
Is this a move toward fairness?
I frankly don’t know. People pay FICA taxes their entire lives in exchange for all the benefits to which they and their family members are entitled. Is it fair to tell them, after years of contributing, “Sorry, that benefit you earned for your spouse was unfair and we’re taking it away”?
Furthermore, we can’t or shouldn’t consider fairness (as in fiscal progressivity) provision by provision or, for that matter, program by program. It may be that Social Security is overly generous to households of type X, but other provisions in our Byzantine tax-transfer system may be overly stingy. Unless we take a comprehensive look at all provisions at the same time, we’re steering blind.
But no agency of our government does any such thing. Indeed, no one in government has any real knowledge of our tax-transfer system’s overall progressivity. And no one knows how fair our treatment is of high-income married and divorced people eligible to collect spousal benefits that they can reasonably claim they paid for via years of contributions.
I’m an extremely strong supporter of compulsory saving and insurance. But I think Social Security should be replaced lock, stock and barrel by my Purple Social Security Plan. The current system is in worse financial shape than Detroit’s two pension plans taken together. It’s leaving a $23 trillion unfunded liability to our kids. It has provisions, like these free spousal benefits, that seem unfair, but who really knows? It’s the basic retirement system for everyone in the country, yet no one understands it.
Rather than fix Social Security from scratch, Mr. Obama is letting it drift to its inevitable enormous bankruptcy, while making the system even more complex — all in the name of enlightened social engineering. The president and his economic advisers owe us more than this — a lot more.
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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