Tricks and tips for getting the most from Social Security

The longer you wait before cashing in on Social Security benefits, the greater the financial reward. But many don’t wait until age 70. There’s a range of loopholes and “secrets” that can improve your benefits, a fact economics correspondent Paul Solman discovered during a tennis game with friend and Social Security expert Larry Kotlikoff. Their new book, “Get What’s Yours,” shares that knowledge.

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  • JUDY WOODRUFF:

    Most Americans depend on Social Security in retirement, and yet navigating the system is often complex and confusing.

    Our economics correspondent, Paul Solman, has co-authored a new book on the ins and outs of the benefit system. And, tonight, he shares some of what he's learned.

    It's part of our ongoing reporting Making Sense, which airs every Thursday on the "NewsHour."

  • PAUL SOLMAN:

    It's often said that aging America faces a retirement crisis, and, according to the AARP, the main source of income for nearly half of Americans in older age is Social Security, a simple system established during the Great Depression to provide a safety net for the indigent in their old age.

    Today, it's become a mountain of rules, more than 2,000 of them, successfully climbed only by those who get good guidance from Social Security or from someone like economist Larry Kotlikoff. A few years ago at this tennis court on a somewhat more hospitable day, he asked me a question.

  • LARRY KOTLIKOFF, Boston University:

    What are you doing about Social Security?

  • PAUL SOLMAN:

    And I said:

    We have it all figured out, as I absolutely thought we did. We're going to wait until 70, and then we get the maximum benefit.

  • LARRY KOTLIKOFF:

    Right, and I figured you didn't know what you were doing, so I asked how old you and Jan were.

  • PAUL SOLMAN:

    And I said, perhaps defensively:

    What difference does it make? I'm about to turn 66. Jan is roughly the same age.

  • LARRY KOTLIKOFF:

    It makes a big difference. I bet I can get you an extra $40,000 to $50,000 in Social Security benefits.

  • PAUL SOLMAN:

    Larry said my wife should apply for her Social Security retirement benefit at age 66, but then suspend it, get herself into the system, that is, but not take any benefits yet.

    Then, when I turn 66, I would apply for a spousal benefit, amounting to half of what my wife was entitled to. Then, when we each hit 70, we'd take our own retirement benefits, which would have risen to their maximum, the result almost $50,000 in additional income for my family in spousal benefits over the four years between 66 and 70.

    There are lots of secrets like the spousal benefit, it turns out, for the disabled, the divorced, the widowed, those taking care of kids or elderly parents.

    So I invited Larry to answer viewer questions on our Making Sense page every Monday. His column's success prompted us to write a book of Social Security advice, "Get What's Yours," "Money" magazine's Phil Moeller completing the trio of authors.

    Against the most financially solid backdrop we could concoct, Moeller explained how important Social Security is for most people.

  • PHILIP MOELLER, Money Magazine:

    It's the most valuable retirement asset they have.

  • PAUL SOLMAN:

    So the first piece of advice you give people?

  • PHILIP MOELLER:

    The first piece of advice is to get all the benefits to which you're entitled. And among these, the one that is most often overlooked is spousal benefits. The second point is, get them in the right time, and that means being patient.

  • PAUL SOLMAN:

    The average Social Security benefit in America at age 62 is just over $12,000 a year. But for every year you defer your benefit, it increases. And if you wait until 70, you get fully 76 percent more, more than $21,000 a year in this example.

    But close to half of all recipients start taking their benefits at the age of 62, thus locking in the lowest monthly benefit rate for the rest of their lives. And less than 2 percent of us hold out for the maximum retirement benefit at age 70. Many people have no choice but to start early.

  • PHILIP MOELLER:

    But it turns out that when people learn about their benefits and how they can grow, a lot of them decide to take them later. How old was your dad, Paul, when he passed away?

  • PAUL SOLMAN:

    Just a little over 99.

  • PHILIP MOELLER:

    Yes, so you might live that long. Imagine what that will be like.

  • PAUL SOLMAN:

    Yes, I had planned to wait until 70, but it turns out, as I discussed with Larry Kotlikoff in a made-for-TV hospital, I was following the wrong prescription.

    I thought, how long do I have to live before the higher benefits from waiting until age 70 will be as great or greater than the benefits I left on the table by not taking Social Security earlier?

  • LARRY KOTLIKOFF:

    Well, that kind of break-even analysis is just nuts, because Social Security is really an insurance mechanism. You don't look at buying homeowner's insurance on a break-even basis. You look at the worst-case scenario, the catastrophe that your house burns down.

  • PAUL SOLMAN:

    And that argument of yours is what actually clinched the deal for me, because I thought, hey, what's the worst that could happen? I outlive my savings, and then my kids are on the hook for health care costs.

  • LARRY KOTLIKOFF:

    Right. We have to think about Social Security as providing insurance against one of our biggest risks, which is what? It's not dying. It's living to a very old age, you end up in a place like this, and you have huge expenses, medical expenses, and you need money.

  • PAUL SOLMAN:

    But Americans take their benefits early for reasons other than just needing the money.

  • PHILIP MOELLER:

    They take them early because they don't think they're going to live a long time. And millions of people take their benefits early because they're pretty convinced the system's going to run out of money and they better get every dollar they can as soon as they can.

  • PAUL SOLMAN:

    And aren't people taking their money early because of Chicken Littles like you? You have been arguing for years that Social Security is bankrupt, the system is broke. So why shouldn't a person take their money as soon as they can?

  • LARRY KOTLIKOFF:

    Well, the system is absolutely broke, but I still don't think that anybody who is now retired or anybody who is close to getting retired is going to see any benefit cuts, politically.

  • PAUL SOLMAN:

    And by politically, you mean it's just too hot an issue?

  • LARRY KOTLIKOFF:

    That's why — that's why cutting Social Security benefits has long been described as the third rail of politics.

  • PHILIP MOELLER:

    If you look at the system in the nearer term, despite all of its problems, it has enough money to pay every dollar it's supposed to pay for more than 20 years, about 20 years, and then it can still pay 70 cents on the dollar for every benefit it owes.

  • PAUL SOLMAN:

    And that's assuming no reforms at all, reforms like, say, getting rid of or heavily taxing benefits such as the ones my wife and I took, benefits some people consider loopholes.

  • LARRY KOTLIKOFF:

    Well, you could view it as a loophole. On the other hand, you paid a lot of taxes. And there are other loopholes in our system, 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 don't see any reason why people shouldn't get what is theirs, what they're legally entitled to.

  • PAUL SOLMAN:

    This is economic correspondent Paul Solman, reporting for the "PBS NewsHour."

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