You think taxes are complicated? Try figuring out the best time and best way to claim your Social Security benefits.
Laurence J. Kotlikoff, co-author of Get What’s Yours: The Secrets to Maxing Out Your Social Security says: “There are 2,728 rules in Social Security’s handbook and maybe another 500,000 — it’s impossible to count them.”
Hence the instructive 324-page book he just published along with financial writer Phillip Moeller and PBS NewsHour business and economics correspondent Paul Solman, to help people make wise Social Security claiming decisions.
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How Much We Expect From Social Security
“At the beginning of this project, my coauthors thought I was far too angry about Social Security. They didn’t get my anger because they didn’t know the rules,” Kotlikoff told me. “By the end, they were saying tougher things than I would.”
Although Kotlikoff is a Boston University economics professor, his book is anything but academic. After all, according to a Bankrate.com survey to be released tomorrow, 27 percent of Americans expect Social Security to account for at least half of their retirement income.
I recently interviewed Kotlikoff for his advice on how to get the biggest Social Security benefit allowable. “There’s no perfect rule for everyone. You need to be strategic about your options,” he said.
Highlights of our conversation:
Next Avenue: Why is it so hard for people to figure out when and how they should claim Social Security?
Kotlikoff: The bureaucrats and politicians over the years have made this the most complicated social insurance system you can imagine. Everything you say about Social Security has to come with a ‘but’ or an ‘if’ or five ‘buts’ or ‘ifs.’ Any normal American, no matter whether they’re left, right or center, would say this is no way to run a railroad.
Why does it matter when and how you claim Social Security?
If a high-earning, 60-year old couple plays their cards right, they might be able to increase the value of their lifetime Social Security benefits by $400,000. And so many in the middle class and lower-income households need money, if they can improve their lifetime income by $10,000, that’s a lot of money. This is a very safe way to make money; all it requires is applying for the right benefits at the right time.
Do people realize how much extra they can get from Social Security by making the right claiming decisions?
No. I recently met with an extremely well-educated divorced woman who runs a big foundation and made her $60,000 in a couple of minutes by advising her.
Most people claim Social Security benefits as soon as they can, at age 62. Is that a good idea?
That’s crazy. The risk isn’t dying without getting your benefits. It’s living and not getting the highest benefit possible.
Is it right to encourage people to increase the amount they can get from Social Security at a time when Social Security’s going broke?
My position is: I encourage people to get what’s theirs because it’s unfair for some people to benefit because they have knowledge that others don’t.
But won’t getting people to receive bigger Social Security checks just deplete the Social Security Trust Fund faster?
Yup it will. But I don’t see Social Security as being radically changed for current or near-term beneficiaries. They’re too powerful; 50 million members of AARP are too much for Congress to take on.
Let’s get to some specifics: People can increase the size of their Social Security checks by 6 to 8 percent every year they delay claiming until age 70 through Delayed Retirement Credits. So should everyone wait to 70?
It’s much more complicated than that.
OK. Then what are the basic rules people should know?
We start with 3 general rules: The first rule is be patient and think about waiting to collect for as long as possible. The second rule is to get all of what’s yours. That means taking all the benefits available to you based on the work history of your current spouse, your ex-spouse, your deceased spouse and your deceased ex-spouse. And the third rule is to get the timing right.
What’s the worst Social Security gotcha?
It’s called deeming. If you take your retirement benefit before your Full Retirement Age [now between age 66 and 67, depending on when you were born] you can be forced — or deemed — to take a spousal benefit early. Then your benefit gets reduced forever.
You recommend some married couples use the ‘file and suspend’ strategy. What is it and why do you like it?
In order for your spouse to receive Social Security spousal benefits, you need to file for your retirement benefit. But you don’t need to take your benefit if you file after reaching Full Retirement Age. You can file but suspend its collection, waiting until age 70 to start receiving your benefit, when it will be at its largest value. By putting your benefit on hold, it could grow by 32 percent.
In a married couple, which spouse should file for benefits first?
If you’re married and are the same age, you most likely want to have the one who is a higher earner file and suspend when he or she reaches Full Retirement Age and have the other go for the spousal benefit. Then, at age 70, both can collect their retirement benefits and the one who filed and suspended can unsuspend.
(MORE: The Social Security 'Split' That Pays For Couples)
What’s your advice for widows and widowers?
You need to figure out the right timing of a survivor’s benefit and a retirement benefit. If your widow’s benefit will be relatively high compared to your retirement benefit, it may be best to take the retirement benefit as soon as possible — at age 62. Then, when you are at Full Retirement Age and your widow’s benefit is as large as possible, hop onto it.
Should people go to their local Social Security office for advice on when to claim benefits?
I think Social Security is one of the last places I would send anyone for advice. Some people there are knowledgeable, some are not.