By Laurence Kotlikoff
Here’s an email I received the other day from a gentleman named Robert. I get emails like this almost every day from people telling me that the good folks at Social Security either don’t know the system’s rules or are giving them half of the information they need or are twisting their arm to do the wrong thing.
Today I found it ironic that on the very day you complained in your column about Social Security employees giving advice they are not supposed give as well as giving incorrect information, I went to the local office and received both.
I went in to file and suspend so that my wife can draw the spouse's payment when she turns 66 in September. When I told a lady named Jenny what I had intended to do, she said I would be giving up a lot of money if I filed and suspended. She pointed out that I could receive a cash payment of over $14K for all of my missed payments over the months since I had turned 66 this past January. She said I could get a maximum of sixth months worth of missed payments provided I locked in my monthly payment for the remainder of my life (ignoring the cost-of-living changes) that I was entitled to when I had reached the full retirement age. I told her I was interested in getting the maximum monthly payment and would wait until I reached age 70. Jenny then told me that I would also be giving up a lot of money from now until I turned age 70 and that I would have to live beyond 85 to reach the break even point on the money I was giving up. I had the impression she pulled that number out of the air. She certainly didn't do any calculations or consult a table.
There can be a fine line between laying out options versus giving advice about which option is best. Jenny pushed me four times to either take the back payments and lock in my just-turned-66 monthly rate or to start my payments now at the higher rate due to having waited from January to August. In this email I cannot convey her body language and her facial expression but both made it clear to me that she wanted me to know that I was making a mistake. However fine the line may be between giving advice versus explaining choices, she crossed it.
The information that I think is incorrect is that Jenny said that when my wife turns 66 she may not be eligible for the spouse benefit because if her personal benefit exceeds the spouse benefit she will have to take up her personal benefit. I thought she could take the spouse benefit at age 66, provided I had filed and suspended, and then have her personal benefit start at age 70. That was the advice we got from your program.
The program is right. Robert’s wife can file just for her spousal benefit at 66 because she will have reached full retirement age. And because Robert’s wife doesn’t file for her own retirement benefit, she’ll get a full spousal benefit, not an excess spousal benefit, as Jenny incorrectly suggested. The full spousal benefit is half of Robert’s full retirement benefit. The excess spousal benefit is zero or the difference, if positive, between half of Robert’s full retirement benefit and 100 percent of his wife’s full retirement benefit. The excess spousal benefit could well be zero, as Jenny suggested, if Robert’s wife’s had a decent earnings history.
Jenny's insistence that the couple start taking their own retirement benefits early would deprive them of what amounts to a free spousal benefit for four years, since Robert’s wife’s own benefit keeps rising each year through 70 due to the Delayed Retirement Credit. Once Robert’s wife hits 70, she’ll want to apply for her retirement benefit and, because she’ll file at 70 for her own retirement benefit, the calculation of her spousal benefit will flip to the excess spousal benefit formula.
It's About Maximum Age of Life, Not Life Expectancy
Jenny was also implying that it’s appropriate to consider your life expectancy in deciding whether to take permanently lower benefits early or permanently higher benefits starting later. The problem with this is that Robert and his wife aren’t going to die on time – or at the time that people die on average. They are going to die when they die and not a second sooner or later. And if that age is 100, well-meaning Jenny won’t be volunteering to pay their bills.
What Jenny's missing is because Robert and his wife fear making it all the way to 100 and running out of money, they are forced, whether Jenny wants them to or not, to plan to live to 100. And when you plan to live to 100, you value every dollar Social Security is going to give you right through age 100. This is why, in maximizing their lifetime (i.e, through age 100 benefits), having Robert’s wife get a free spousal benefit and having them both wait until 70 to collect their own retirement benefits is the solution. And it will be the maximizing strategy even if the probability of either Robert or his wife making it beyond their life expectancy is very low.
The moral of this story is that you don’t want to ask anyone at Social Security anything. The exception is if you can get to a designated Technical Expert. These people know their stuff cold and also understand that we can count on dying.
Laurence Kotlikoff is an economist at Boston University, co-author of "The Clash of Generations." His software company markets Maximize My Social Security.