1. Because women live longer than men but tend to earn less, husbands should begin their Social Security retirement by claiming a spousal benefit.

2. Therefore, the wife should claim benefits as soon as she can (age 62) on her own earnings record and continue claiming her own Social benefit until her husband dies.

3. The husband should claim a spousal benefit based on his wife’s earnings record when he reaches his full retirement age (e.g., age 66).

4. When the husband turns 70, and assuming he was the higher lifetime wage earner, he claim his own retirement benefit and stops the spousal benefit.

5. If the husband dies before the wife (statistically likely), the wife then switches to a survivor’s benefit based on her husband’s record.

This strategy should maximize the total Social Security benefits received by the couple over their combined lifetimes.

This should work OK for us.  I am four years older than my wife. When she turns 62, I will be 66 so she will claim her benefit, I will claim a spousal benefit (50% of her benefit) until I turn 70, at which time I will claim my own, maximized benefit .  I will have to run the numbers to compare this strategy to the “claim and suspend” strategy in which I claim my own benefit at age 66, she claims a spousal benefit, then I suspend my benefit until I turn 70 which will increase my benefit by more than 30%.

Lots to think about but you can read more about spousal benefit strategies here.

Related posts:

1. Investing Reasons to Claim Social Security Retirement Benefits Early
2. New Social Security Calculator for Estimating Retirement Benefits
3. Starting Social Security Early – Break-Even Age Actuarial Analysis

For most boomers the concerns about changes in Social Security should be minimal. Even those who believe aggressive changes are needed to Medicare and Social Security tend to agree that the changes should not affect those who are near retirement. Means testing may come into play at some point but I doubt it will be applied to those who are at least age 60.

On the other hand, some folks who are hitting age 62 are taking another approach to the Social Security benefit question, one that I think is irrational. Their argument is that if you don’t claim the retirement benefit now, you may lose it. Rubbish.

The more rational approach is actuarial, as I have discussed before. The AARP has recently released its new online Social Security benefit calculator. To use the calculator, you enter your age, gender, and estimated monthly benefit at your full retirement age. The calculator immediately graphs your different anticipated benefit levels at different ages.

You can also enter your estimated retirement living expenses so that the calculator will determine the percentage of your retirement income needs will be met by Social Security.

I give credit to the AARP calculator for including a section that graphically explains what will happen to your Social Security retirement benefit if you claim the benefit early (before full retirement age) and also work.  (Here is more information on working past age 62 while claiming Social Security.)  There are data sliders that you can manipulate to dynamically show the effects of changes in the different data inputs. The calculator also reports the odds that you will live beyond a certain age. Consideration of impact of your life expectancy on your income plan is imperative.

The concluding “What does it all mean?” section of the AARP calculator allows you to print a summary report personalized for you. It doesn’t answer the question of when you should claim your Social Security retirement benefit but it gives you plenty of information to consider.  I particularly liked these tidbits on my report:

• It may be better to spend your savings than claim earlier.
• For every year you wait, your benefits go up by $2,109 annually.

The idea that you should spend savings first so that you can delay claiming Social Security may appear counter-intuitive but it’s not. Remember that Social Security has three important attributes: (a) it provides income like a lifetime annuity; (b) the benefit is indexed to inflation; and (c) it has almost zero risk. A conventional retirement nest egg has none of these attributes.

I strongly recommend that you give the calculator a try for you and your spouse. Here is the link: Social Security Calculator – Estimate SSI Retirement Benefits and Income

Meanwhile, I have learned about yet another new tool for determining the best age to start Social Security. I am evaluating it now and will report on it soon.

Related posts:

1. Investing Reasons to Claim Social Security Retirement Benefits Early
2. Finding the Best Strategy for Social Security Spousal Benefits
3. Taking Social Security Early – Boomers Panic

I can’t place all of the blame on boomers for their decisions to take SS benefits at age 62. In some cases, they are encouraged by their “financial advisers” to take the benefits and invest them. These advisers, of course, are primarily salesmen. What they don’t tell you is that many of their clients lack the discipline to actually invest the money when it arrives every month. They are tempted to spend it and they do.

But the article continues with the assumption that you will invest it. How does that work out?  Here is the short answer, in the words of the author:

Does the “start early and invest” strategy result in more income than if you had simply waited until age 70 to start your Social Security benefits? The answer is yes if you don’t live to at least average life expectancies, and/or if you achieve good rates of return. The answer is no if you live to average life expectancies or beyond and/or you achieve modest rates of return.

In more concrete terms, if you invest and achieve a 5% return on your investments, and further assuming 3% average COLA benefit adjustments, the break-even age for taking benefits at age 62 compared to age 70 is 82. If you achieve an 8% return, the break-even age increases to 89.

Do you really expect to earn 8% or even 5% for the next eight years in this economic climate? I hope so but I am not counting on it. A double-dip recession will kill that idea in a hurry.

The author points out that his simple actuarial analysis of taking Social Security early does not consider spousal benefits. This is a serious omission for married couples in which one spouse was the primary wage earner.

Here is a link to the full article: Start Social Security Early and Invest? Ask the Actuary

Related posts:

1. Investing Reasons to Claim Social Security Retirement Benefits Early
2. Taking Social Security Early – Boomers Panic
3. New Social Security Calculator for Estimating Retirement Benefits

This trend is bad for the retiree but perhaps good for the long term health of the Social Security system. For each year prior to age 70 that benefits begin, the retiree gives up 7%-8% in benefits. This loss  applies as well to the surviving spouse. This can make sense if your health is expected to give you a short life span. It may also be necessary if you are unemployed and broke.

However, it seems that a lot of folks are claiming benefits at age 62 because they fear that Congress will cut their benefits if they don’t. This is crazy thinking in my opinion. That might be a concern if you are 42 but not 62. I’m not alone in this thinking. Alicia H. Munnell, director of the Center for Retirement Research at Boston College, had this to say about boomer fears:

It’s so off the mark. There is no question the benefits will be paid. The worst that could happen is that the system would be able to provide only 80% of the benefits under current law.

The Social Security Administration estimates that benefits could be reduced by 22% and could continue to decline, barring any changes to the system, starting in 2037. A fear of benefit cuts in 2037 is no reason to surrender so much now, by claiming at age 62.

The author of a recent article on this subject also surmises that many boomers simply fail to comprehend what they are losing by taking Social Security benefits early. I agree and I suspect that this ignorance is particularly acute when the interests of the surviving spouse are considered.

Perhaps every early potential claimer should first be forced to read the hard numbers on paper, such as these from the article:

A top-earner retiring at 62 would get $1,803 a month. By waiting until 66, he’d increase that amount to $2,442, and delaying until 70 would bump the monthly payment to $3,256. Another way to look at it: someone who delays taking Social Security until 66 rather 62 will collect more money over time if they live until at least age 77.

Read more here: When Should You Take Social Security?

Related posts:

1. Starting Social Security Early – Break-Even Age Actuarial Analysis
2. Investing Reasons to Claim Social Security Retirement Benefits Early
3. New Social Security Calculator for Estimating Retirement Benefits

First, let’s consider what has happened to our so-called wealth:

According to a report by the Center for Economic and Policy Research, a liberal Washington think tank, households headed by boomers between the ages of 55 and 65 lost about half of their wealth between 2004 and 2009 as a result of the real estate collapse and the shrinkage of 401(k) retirement accounts

(Source) This was a boomer calamity of the highest order because we do not have enough working years remaining to recover this lost wealth. Many boomers who lost jobs in the recession were forced to “retire” at 62 just to keep food on the table.

Retirement plans – such as the 401(k) – were supposed to be the retirement income salvation for boomers but that is not the case. Only 1/2 of working Americans even have access to tax-deferred retirement plans and the average pre-crash value of those was only $45,500. That won’t be much help.

Old folks just don’t have much income – period.  Consider this from the same article:

The archetype of the greedy geezer is based partly on a misconception about today’s oldest Americans: the World War II generation. The frequently repeated statistic that 75% of all assets are owned by people over 65 is utterly misleading, because those assets are held in a minority of very rich hands. Nearly half of older Americans receive no income — none — from assets such as stocks and savings accounts. Of those who do, half receive less than $2,000 a year. Three-fourths of those over 65, according to a report by the nonpartisan Congressional Research Service, have annual incomes, including Social Security, of less than $34,000.

Will there be baby boomers who receive Social Security and Medicare benefits who don’t need them? Sure – but not many.

How ironic that when polled during the debate over healthcare reform, two-thirds of the over-65 generation opposed it – even though almost all of them were receiving it themselves from Medicare. Hypocrisy in action.

Boomers have made a lot of borrow-and-spend mistakes but we are not alone. We should not be punished as a generation based on the myth that we are all sitting on gigantic retirement nest eggs.

Here is the link to the full op-ed piece – a must read: Social Security, Medicare and the nest-egg myth

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If a retiree owns investments that are providing consistently high returns, and if an early (albeit diminished) Social Security benefit would allow the retiree to keep those investments earning, it may make sense to use the early benefit strategy. In other words, the total dollars gained by keeping high-return investments working could exceed the dollars lost by claiming an early SS retirement benefit.

The problem in today’s economy is I doubt there are any reasonably safe investments that would provide the high returns needed to make the math work. Keep in mind that by waiting until age 66 to claim Social Security, your benefit will increase by 25%. That is a permanent increase, month after month and year after year. Moreover, the benefit difference is further compounded by cost-of living increases that are built into the system. If inflation strikes with a vengeance, those cost of living increases will be worth a lot more than a high yield investment that is suitable for a retiree.

It does give us something to think about when contemplating when to claim a SS benefit. For more reading on this topic, read this excellent article by Jane Bryant Quinn, courtesy of the AARP: Financially Speaking: Social Security, Longevity Insurance; When to Claim Benefits

Related posts:

1. Taking Social Security Early – Boomers Panic
2. Finding the Best Strategy for Social Security Spousal Benefits
3. Starting Social Security Early – Break-Even Age Actuarial Analysis

Here is the hypothetical scenario that concerns me. The 2% reduction in payroll tax for 2011 is intended to function as an indirect spending stimulus. OK, fine. The problem is that this grossly under-funds Social Security for the year, adding to the enormous fiscal gap that already threatens Social Security down the road. Later in 2011, segments of a Republican-enthused Congress may try to make this 2% tax cut permanent. This will create even more pressure on a financially-strapped Social Security system. The response to this by this same segment of Congress will be to cut Social Security benefits and/or to privatize it.

That may be acceptable to 20-year olds but not to baby boomers like me. Our retirement plan includes income from Social Security retirement benefits, as estimated in the annual statements we receive. If those estimates end up being wrong because of changes to the benefit schedule ……

I have to think that if the payroll tax cut is extended beyond 2011, any future changes to Social Security benefits will not be applied to those of us who are close to retirement. It would be unconscionable otherwise.

Nevertheless, I intend to bank the extra money in my paycheck, just in case. This will not be a spending stimulus for us. What about you?

Related posts:

1. Taking Social Security Early – Boomers Panic
2. Investing Reasons to Claim Social Security Retirement Benefits Early
3. New Social Security Calculator for Estimating Retirement Benefits

The benefits received would have to be repaid but without interest. Thus, this strategy effectively became an interest-free loan from the government to the retiree.

The Social Security Administration has now closed that loophole with a new rule. Here is the announcement:

The Social Security Administration today published final rules, effective immediately, that limit the time period for beneficiaries to withdraw an application for retirement benefits to within 12 months of the first month of entitlement and to one withdrawal per lifetime. In addition, beneficiaries entitled to retirement benefits may voluntarily suspend benefits only for the months beginning after the month in which the request is made.

That about does it.  Not many folks could afford to actually use this strategy but it’s gone for good now.

You can still have a do-over but only if you change your mind within 12 months. And to avoid serial do-overs for the very clever, you only get one.

Here is a link if you like reading the fine print: New SSA Rule

Related posts:

1. New Social Security Calculator for Estimating Retirement Benefits
2. Investing Reasons to Claim Social Security Retirement Benefits Early
3. Taking Social Security Early – Boomers Panic

I’m going to skip all of the doom and gloom predictions and stated rationales for fiscal reform. We all know that things are bad and fixes are needed. I’m going to look at the proposals more selfishly, as in how they might affect me and my fellow boomers.

In my opinion (and in no particular order), these are the specific proposals most relevant to me and us:

1. Cap tax-preferred contributions to retirement plans to the lower of $20,000 or 20% of income. Many upper middle class boomers are doing better than this with corporate 401k plans. This is a direct challenge to the super-savers.

2. All capital gains and dividends taxed at ordinary income rates. This would certainly affect retirement investing strategies.

3.  No more itemized deductions. The mortgage interest deduction would be converted to a non-refundable 12% tax credit, with a $500K mortgage maximum and excluding second home mortgages and equity lines of credit. I think something will definitely happen in this area so get busy paying off that mortgage.

4. Repeal the Class Act. The Class Act is the new public plan for long term care insurance. It is so new, it hasn’t been implemented yet. Many observers believe the plan will be an economic disaster so the Commission wants to kill it before it even gets off the ground.

5. Restrict First-Dollar Coverage Provided by Supplemental Medicare Insurance. The Commission believes that health care costs are too high because Medicare members are too well insured and therefore over-utilize services. By limiting how much supplemental insurance can cover what Medicare doesn’t, the Commission wants us to feel more spending pain through cost sharing.

6. Decrease Social Security Benefits for High Earners. Right now, Social Security benefit levels are extremely progressive, meaning that the income replacement formula used to determine benefits is heavily weighted toward lower earners. The Commission wants to make the formula even more progressive so that high earners receive lower benefits as a percentage of their earnings. The Commission proposes that these changes be phased in over the next 40 years. Hopefully this means that baby boomers will not be affected.

7. Increase the early and full retirement ages. The Commission wants to gradually increase the full retirement age to age 69 and the early retirement age to age 64. By “gradual” I mean by 2075. I can’t see how this change will affect current boomers.

8. Create rules allowing for a phased retirement. This is very interesting. The Commission recommends that the SSA create rules that would allow retirees to claim up to 1/2 of their benefit at age 62 and the other half at a later age. This would be perfect for folks who want to phase out of working gradually rather than go cold turkey. Part of this recommendation includes elimination of the “claim now, repay benefits, claim again later” rule which the Commission deems a loophole benefiting high earners.

9. Increase the Social Security wage limit. The Commission wants SS taxes to be paid on up to 90% of income. Some form of this will happen but it will be phased in so is unlikely to significantly affect boomers.

10. Improve calculation of cost of living increases. Fortunately, the Commission understands that using the way that the standard CPI is determined for purposes of cost of living adjustments to SS benefits is bogus. This proposed change to a “chained CPI” would be beneficial to all retirees on Social Security.

What do you think of these proposals?

Here is a link to the full report.

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That’s what economic writer Chris Farrell suggests in a recent opinion piece for CNN. I like his arguments, mostly based on a historical reason why the Social Security retirement system was created.

Let’s start with the primary argument why raising the retirement age is the best answer for shoring up the shaky finances of the Social Security trust fund. That argument goes like this:  Today, the average life expectancy for an adult in the U.S. is 78 years. When the Social Security Act was passed, the average life expectancy was 61 years. Therefore, because we are a healthier and better educated population, it is realistic to expect most Americans to work longer.

But consider this: Before Social Security retirement benefits became available in the 1950s, full retirement was something that only the wealthy could afford. Many elderly Americans in the middle class needed to work for an income.  Work was often hard to find. There was no extended retirement leisure time for the middle class. They worked and then they died.

Fast forward to Social Security, and then to Medicare in 1965. Now you had many aging workers who could actually stop working to survive and find something else to fulfill them in the last third of their life. A genuine retirement was no longer just for the rich folks.

As Farrell puts it:

It was a major social and economic achievement of the 20th century. The richer a society becomes, the more people spend on health care, education, leisure and, yes, early retirement. That’s what wealthy societies do.

This suggests that the public policy goal should be to lower the retirement age to, say, 50-something. Again, that’s an age of retirement only the rich can afford. Why not create a comparable option for everyone?

To accept Farrell’s argument, you have to buy into the concept that retirement is a stage of life that everyone at all income levels should experience. In a way its analogous to saying that folks under 18 should have access to a K-12 education without having to work for it, not just those who can afford tuition. If the wealthy can stop working in their 50′s, why shouldn’t all of us?

Of course, I recently wrote about battles being fought in France and elsewhere about raising the retirement age. This fight is not over the principle of early retirement. It’s over the financial cost to the taxpayers.

One economist cited in Farrell’s article proposes that early retirement be phased in over generations, funded by mandatory savings accounts for every worker. For the lowest income workers, their savings rates would be boosted by taxes imposed on the wealthy. That’s a slippery slope, of course, but we are already on that slope with a myriad of refundable tax credits.

I don’t think any changes made in the Social Security retirement age will substantially affect baby boomers. But Farrell’s argument about the history of Social Security helps relieve me of any guilt I might otherwise feel about insisting that we receive our benefits as promised, in full and on time.

Here is the link to the article: Lower retirement age to 50-something

Related posts:

1. New Social Security Calculator for Estimating Retirement Benefits
2. Investing Reasons to Claim Social Security Retirement Benefits Early
3. Taking Social Security Early – Boomers Panic