Showing posts with label social security. Show all posts
Showing posts with label social security. Show all posts

Wednesday, October 17, 2018

Social Security Announces 2019 Changes

The Social Security Administration (SSA) has released the 2019 benefit changes.   Based on the increase in the Consumer Price Index (CPI-W) from the third quarter of 2017 through the third quarter of 2018, Social Security and Supplemental Security Income (SSI) beneficiaries will receive a 2.8 percent increase or COLA for the year 2019. 

SSA also announced an increase in the SSA taxable maximum amount to $132,900. The indivdiual's amount for SSI for 2019 will increase to $771 per month. 

The tax rate for most people is 7.65%, the combined rate for Social Security and Medicare. The Social Security portion (OASDI) is 6.20% on earnings up to the applicable taxable maximum amount. The Medicare portion (HI) is 1.45% on all earnings. Also, as of January 2013, individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly) pay an additional 0.9 percent in Medicare taxes (not reflected in the 7.65% combined rate reported above). 

The detailed fact sheet is available here.

Thursday, August 30, 2018

Reforming Social Security with Child Caregiver Credits


The Center for Retirement Research at Boston College has released an issue brief entitled, "Modernizing Social Security: Caregiver Credits."  The brief opens with the following statement of the challenge presented by recent demographic changes:

Women still tend to work fewer years and earn less than men, which leads to less income in retirement. One reason is that women are often still the main family caregiver. Traditionally, Social Security has recognized this role by providing spousal and widow benefits for married women. Today, however, many women are not eligible for these benefits because they never married or they divorced prior to the 10-year threshold needed to qualify. Even those who are married are less likely to receive a spousal benefit, as their worker benefit is larger. Thus, many mothers receive little to no support to offset lost earnings due to childrearing.
Of course, the population for whom Social Security was designed looks much different than the population for whom Social Security must provide benefits.  Social Security was designed in the 1930s when, typically, the husband was the sole breadwinner and the wife a homemaker. The program included spousal and widow benefits designed for this standard one-earner household. Although these family benefits are not gender based, they typically worked to benefit women because women generally work fewer years and earn less than men. The ability of women to receive family benefits, however. has declined sharply in recent decades as their employment patterns and the nature of the family unit have changed dramatically. 

On the employment front, the labor force activity of married women has increased significantly, which means that women increasingly receive benefits based on their own earnings record, and are much less likely to receive spousal or widow benefits.  Despite their increased workforce activity, though, research suggests that women continue to be at a disadvantage in the labor market compared to men. Research suggests that part of the reason is caregiving duties, which can reduce work hours and affect access to better-paying jobs.   For example, women ages 25-44 – those most likely to have young children – work part time more often than men. Even when working full time, women earn only about 80 percent as much as men.

Contributing to the challenge of providing a fair benefit for women is that fewer women are eligible for Social Security family benefits due to patterns of marriage and divorce. The increasing divorce rate has resulted in about 25 percent of first marriages ending within 10 years, the eligibility threshold needed for access to family benefits.  These short-lived marriages, which comprise a greater number of total marriages, unfortunately, are excluded from access to family benefits under Social Security, despite the continuing financial burdens the marriages place upon the individuals involved.      

Childbearing among unmarried women has also increased sharply – from 18 percent of all births in 1980 to 40 percent today. These trends have sharply increased the percentage of households headed by single mothers, leaving a wide swath of women with no access to family benefits.  Compared with married mothers, single mothers face even more labor market constraints from their childcare responsibilities, further impeding their job prospects and reducing their ability to earn an adequate Social Security benefit.
Overall, the changes in labor market and marital patterns mean that large numbers of women are going to move through retirement with more disadvantages than their earlier counterparts. Not surprisingly, among those ages 65 and over, poverty rates for unmarried women exceed those of unmarried men,  and unmarried women account for one-third of all households ages 65-69 and two-thirds of households ages 85 and over. Childcare responsibilities are a major contributor to low income in retirement. One study found that women ages 65-74 who spent at least 10 years as a single mother were 55 percent more likely to be poor than continuously married mothers of similar education and ethnicity. 

Because of the poor outlook for retirement income among single women and a growing sense that the economic value of caregiving should be recognized, many policy experts have advocated caregiver credits.  The 10 page brief looks at how the topic is handled in other countries and discusses two avenues for resolution in the U.S.: (1) "[i]ncrease the number of work years that are excluded from benefit calculations ... [and] (2) [p]rovide earnings credits to parents with a child under age six for up to five years."  The brief argues for earnings credits for child rearing.

The brief concludes in part:
"It is easy to understand the appeal of crediting Social Security records to reflect lost earnings due to caring for a child. In the past, this activity was usually compensated for by the spousal benefit, but changes in women’s work and marriage patterns have left fewer eligible for it. A credit is also more appealing than a spousal benefit if the goal is to compensate for the costs of child rearing, independent of marital status."
Regardless to which cause or causes you attribute these changes, there is little question that the disparity, at least in outcomes among single women, is real.  Moreover, our society is evolving to value more "caregiving," whether or not familial, and regardless of the age or needs of the person requiring care.  Nothing could better underscore the real value of caregiving, especially for children, than the government recognizing a financial value for the effort in order to provide a more effective safety net for seniors. 

Particularly as the government struggles to find effective solutions for care and support, and individuals, families, and communities design and construct their own, often non-governmental solutions, these efforts should find encouragement and support.  In other words, the decision to value caregiving will not only impact retirement income for a vulnerable group of retirees, but will suggest promise in addressing the caregiving needs , demands, and realities, of both the elderly, and the someday-to-be-elderly family caregivers.  

Wednesday, May 2, 2018

Representative Payee Rules Change

On April 13, President Trump signed the Strengthening Protections for Social Security Beneficiaries Act of 2018. The law directs state Protection & Advocacy (P&A) system organizations to conduct all periodic onsite reviews along with additional discretionary reviews. In addition, the P&As will conduct educational visits and conduct reviews based on allegations they receive of payee misconduct. The new law allows the Commissioner to exempt custodial parents of minor children and disabled individuals, as well as spouses, from annual payee accounting.

Representative Payees can complete a Representative Payee Report form online  to account for the Social Security or SSI benefits received or P&As may select a representative payee for review.

The P&A review includes:

  • an interview with the individual or organizational representative payee;
  • a review of the representative payee’s financial records for the requested beneficiary or sample of beneficiaries served;
  • a home visit and interview for each beneficiary included in the review; and
  • an interview with legal guardians and third parties, when applicable.

Financial Records Representative Payees Should Have Available for Review

When the P&A schedules the review, the reviewer will request the records needed for each beneficiary. Some common financial documents that representative payees may be asked to provide are:

  • a beneficiary budget;
  • a beneficiary ledger;
  • individual bank statements;
  • Collective account bank statements;
  • receipts of income;
  • account balances;
  • bank reconciliation records;
  • cancelled checks;
  • expense documentation including receipts, bills, and rental agreements;
  • how the payee keeps conserved benefits (e.g., checking, savings, etc.); and
  • any other financial documents that pertain to a beneficiary’s Social Security and/or SSI benefits.

Tuesday, November 3, 2015

Social Security Claiming Rules Changed to Eliminate Beneficial Strategies

President Obama has signed the Bipartisan Budget Act of 2015 which includes important changes to the Social Security retirement system.  Among these changes are Rules that are designed to close "unintended loopholes" in the Social Security Act. These "loopholes" are the "file and suspend" and "restricted application" claiming strategies. These strategies are used by applicants to provide necessary income, but permit social security benefits to continue to grow, permitting later claiming of benefits at larger benefit amounts.  

Under the new law, some groups of Social Security claimants are wholly unaffected, while others will lose all access to available claiming strategies.  If you are not already implementing a claiming strategy, you may find that the strategy is no longer available to you.  

The new law adversely impacts the following groups:
  1. Divorcees who were born in 1954 or later;
  2. Couples where the person who was previously planning to claim a spousal benefit first then switch to their own benefit later under a restricted application strategy was born after 1953;
  3. Couples who are planning to pursue a file and suspend strategy, but wait more than six months to file and suspend.
Divorcees born after 1953 will be able to claim either a spousal benefit or their own retirement benefit (whichever is larger), but they will not be able to switch from one to the other at a later time.  Claimants born after 1953 will not be able to claim one benefit and then switch to another benefit later under the new law, affecting those who intended to employ a restricted application strategy.

The new law allows people to file and suspend for another 180 days after the law goes into effect. If someone waits more than six months, they will not be able to use this strategy. They will be able to pursue a restricted application strategy if the person who claims the spousal benefit was born in 1953 or earlier.

The new law does not affect claiming strategies for the following groups:
  1. Single people;
  2. Widowers;
  3. Divorcees who were born in 1953 or earlier; and
  4. Couples who are already pursuing a restricted application claiming strategy (These are couples where the primary beneficiary has already claimed his/her benefit and the spouse has claimed a spousal benefit. The spouse will still be able to switch to their own benefit at a later date.);
  5. Couples who are already pursing a file and suspend strategy (These are couples where the primary beneficiary has already filed and suspended, and the spouse has claimed a spousal benefit. The spouse will still be able to claim their own benefit at a later date. The primary beneficiary will also be able to claim his/her own benefit at a later date.);
  6. Couples who are planning to pursue a restricted application strategy and the person who plans to claim a spousal benefit was born in 1953 or earlier (These are couples where the primary beneficiary plans to claim his/her benefit in the future- or has already claimed a benefit- but the spouse has not yet claimed a spousal benefit. As long as the spouse was born in 1953 or earlier, the spouse will be able to claim a spousal benefit after reaching 66 and then claim their own benefit later.);
  7.  Couples who plan to pursue a file and suspend strategy before sometime in late April or early May of 2016, and the person who plans to claim a spousal benefit was born in 1953 or earlier (The new law provides a window of 180 days after the law becomes effective where couples can still use the file and claim strategy).
Previously Recommended Strategies

If you have received a written strategy, plan, or analysis from a professional, you will need to consult with the professional before implementing the plan.  Generally,  however, the following are suggestions for helping to determine whether previous recommendations are valid:
  • If a scenario recommends “file and suspend” it is probably no longer a valid recommendation, unless the the claimant can can sensibly file and suspend no later than about May 1, 2016 (The precise cut-off date is 180 days after the law becomes effective, which appears to be 11/2/15.);
  • If the scenario recommends a “restricted application” (and no file and suspend strategy is involved), it is almost surely a valid recommendation if the claimant is born in 1953 or earlier. If a claimant is born in 1954 or later, a recommendation to file a restricted application is no longer valid. NOTE: Whether this statement also applies to ex-spouses is presently unclear.
If you have already implemented a strategy, it is best for you to consult with your financial adviser or professional to ensure that future actions pursuing the plan are not foreclosed by the new law.

The bottom line for those who may be retiring is that the government has now made it more difficult for you to comfortably forestall claiming social security at a later age, where the benefit paid to you is higher and more valuable over your life.  The effect will be that millions will continue to claim social security at the first availability, leaving the government responsible for paying less in social security benefits.    

Monday, October 12, 2015

No Increase in Social Security Benefits Next Year

For just the third time in 40 years, millions of Social Security recipients, disabled veterans and federal retirees can expect no increase in benefits next year.  By law, the annual cost-of-living adjustment, "COLA," is based on a government measure of inflation. 

The government is scheduled to announce the COLA — or lack of one — on Thursday, when it releases the Consumer Price Index for September. Inflation has been so low this year that economists say there is little chance the September numbers will produce a benefit increase for next year. Prices actually have dropped from a year ago, according to the inflation measure used for the COLA.

Congress enacted automatic increases for Social Security beneficiaries in 1975, when inflation was high and there was a lot of pressure to regularly raise benefits. Since then, increases have averaged 4 percent a year.  Only twice before, in 2010 and 2011, have there been no increases. 

Almost 60 million retirees, disabled workers, spouses and children get Social Security benefits. The average monthly payment is $1,224.  The COLA also affects benefits for about 4 million disabled veterans, 2.5 million federal retirees and their survivors, and more than 8 million people who get Supplemental Security Income, the disability program for the poor. Many people who get SSI also receive Social Security. 

In all, the COLA affects payments to more than 70 million Americans, more than one-fifth of the nation's population. 

Medicare premiums, however, will increase.

Monday, August 24, 2015

Happy Birthday Social Security!

August 14 marked the 80th anniversary of the Social Security Act. Acting Commissioner Carolyn W. Colvin announced the launch of the agency's event-filled celebration, with many activities leading up to this date.

President Franklin D. Roosevelt signed the Social Security Act in 1935, providing economic security for workers when they retired. Today, Social Security provides benefits to more than 56 million retirees, disabled workers, and their families.

Thursday, August 13, 2015

2016 Medicare Pemiums to Increase- Social Security Benefits Stay Flat

According to Mark Miller, writing for RetirerementRevised, "retirees are facing a double-whammy next year: no inflation adjustment in their Social Security benefits and a whopping 52 percent jump in certain Medicare premiums."

The article continues: 
Medicare premium hikes will hit only 30 percent of beneficiaries – those who are not protected from a “hold-harmless” provision in federal law that prohibits any premium hike that produces a net reduction in Social Security benefits. But the likely increases suggest strongly that the recent trend of moderate healthcare inflation is ending.

Let’s start with the Social Security news. Final figures for 2016 will not be available until the fall, but the recent annual report of Social Security’s trustees projects that there will not be any cost-of-living adjustment (COLA) next year. The COLA is determined by averaging together third-quarter inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Inflation has been flat due to collapsing oil prices.

On the healthcare front, renewed cost pressures are pointing toward much higher Medicare premiums starting next year, according to the Medicare trustees’ annual report.

Consider the monthly premium for Part B (outpatient services), which has stayed at $104.90 for the past three years. The Medicare trustees projected that the premium will jump 52 percent, to $159.30 for beneficiaries who are not protected by the hold harmless provision.

That would include anyone enrolled in Medicare who is not yet taking Social Security benefits due to a decision to delay enrollment. It also would include new enrollees in Medicare next year. (The increase also would be applied to low-income beneficiaries whose premiums are paid by state Medicaid programs).

High-income retirees – another group that is not protected by the hold-harmless provision – also will be hit hard if the trustee projections hold.

Affluent seniors already pay more for Medicare Part B and also Part D for prescription-drug coverage. This year, for example, higher-income seniors pay between $146.90 and $335.70 monthly for Part B, depending on their income, rather than $104.90.

The Medicare trustees now project that to jump even more.
Go here to read the whole article.

Monday, July 27, 2015

Understanding "Third Party" Special Needs Trusts

There are three types of special needs trusts: first-party special needs trusts, third-party special needs trusts, and pooled trusts.  All three are designed to manage resources for a person with special needs so that the beneficiary can still qualify for public benefits like Supplemental Security Income (SSI) and Medicaid.  While first-party special needs trusts and pooled trusts hold funds that belong to the person with special needs, third-party special needs trusts, as the name implies, are funded with assets that never belonged to the trust beneficiary, and they provide several advantages over the other two types of trusts.

Third-party special needs trusts are set up by a donor – the person who contributes the funds to the trust.  A typical donor is a parent, grand-parent, or sibling of the special needs beneficiary.  These trusts are typically designed as part of the donor's estate plan to receive gifts that can help a family member with special needs while the donor is still living and to manage an inheritance for the person with special needs when the donor dies.  Third-party special needs trusts can be the beneficiaries of life insurance policies, can own real estate or investments and can even receive benefits from retirement accounts (although this process is very complicated and not typically recommended unless there aren't other assets available to fund the beneficiary's inheritance).  There is no limit to the size of the trust fund and the funds can be used for almost anything a beneficiary needs to supplement her government benefits.  Upon the beneficiary's death, the assets in a third-party special needs trust can pass to the donor's other relatives as the donor directs.

One of the key advantages of a third-party special needs trust is the ability of the donor to direct the assets available upon the beneficiaries death without risk of resource recovery-the right of the state to recover assets to pay the state back for benefits paid during the beneficiary's life.  Because the funds in the trust never belonged to the beneficiary, the government is not entitled to reimbursement for Medicaid payments made on behalf of the beneficiary upon her death, unlike with a first-party or pooled trust.  This allows a careful donor to benefit her family member with special needs while potentially saving funds for other people who don't have the same needs.

Whereas first-party special needs trusts can only be established by the beneficiary's parent, grandparent, guardian or a court, anyone other than the beneficiary can set up a third-party special needs trust.  First-party trusts must be established for the benefit of someone who is younger than 65, but third-party trusts don't have age limits.  In some states, first-party trusts must be monitored by a court, but third-party trusts almost never have to go through this same process, especially while the donor is still alive.  In addition, while the donor is living, funds in the trust usually generate income tax for the donor, not for the beneficiary, avoiding the complication of having to file income tax returns for an otherwise non-taxable beneficiary and then explain them to the Social Security Administration.

Although a third-party special needs trust has many advantages, it is not always a viable option for families of people with special needs.  One of the major drawbacks of a third-party trust is its absolute inability to hold funds belonging to the person with special needs.  So if the trust beneficiary receives an inheritance that wasn't directed into the special needs trust to begin with or if she settles a personal injury case, the funds have to be placed in either a first-party trust or a pooled trust, since even one dollar of a beneficiary's own money could taint an entire third-party trust.  But even with these restrictions, most people trying to help a family member with special needs are going to at least need to strongly consider drafting a third-party special needs trust.  Your attorney can help you understand how these important trusts fit into your other estate planning goals.

Thursday, June 11, 2015

SSA Clarifies Its Position on Court-Established (d)(4)(A) Trusts

Responding to criticism from advocates that the Social Security Administration (SSA) was unfairly refusing to allow court-established (d)(4)(A) trusts to qualify as exempt resources for Supplemental Security Income (SSI) purposes, the SSA has issued an Administrative Message clarifying its policy regarding these trusts and ordering officials to approve the trusts if they meet the other (d)(4)(A) requirements and were not created prior to the order issued by the court.
Apparently based on the SSA's Trust Training Fact Guide, some SSA offices have recently been refusing to approve court-established (d)(4)(A) trusts because they were not created by a court "order."  Since people with disabilities are unable to establish their own (d)(4)(A) trusts, if the SSA's position were uniformly applied it would mean that no court could ever establish a (d)(4)(A) trust unless it did so on its own initiative.
The SSA has now issued an Administrative Message, first published by Illinois attorney and Social Security expert Avram L. Sacks on the NAELA members listserv, explaining that the rejection of court-established (4)(d)(A) trusts is inappropriate when the trust was not finalized prior to the court's action.  The message states that "[i]n the case of a special needs trust established through the actions of a court, the creation of the trust must be required by a court order for the exception in section 1917(d)(4)(A) of the Act to apply. That is the special needs trust exception can be met when courts approve petitions and establish trusts by court order, so long as the creation of the trust has not been completed before, the order is issued by the court. Court approval of an already created special needs trust is not sufficient for the trust to qualify for the exception. The court must specifically either establish the trust or order the establishment of the trust."
The message goes on to give four clarifying examples of situations where trusts may or may not fit this criteria.  In the first example, an SSI beneficiary's sister petitions the court to create and order the funding of a trust to hold the beneficiary's inheritance.  The sister provides a draft trust to the court.  When the court issues an order approving the petition and ordering the creation of the trust, it will meet the requirements of SI 01120.203B.1.f.  In the second example, a judge orders the creation of a trust to hold a settlement, and the trust document lists the settlement as the trust's original corpus.  This trust also passes muster with the SSA.  In the two negative examples, the SSA claims that when a court approves a trust that has already been created ahead of time, or when a court amends a defective trust with a nunc pro tunc order to make the amendment retroactive to the date the trust was originally created, the trusts will not qualify for the special needs trust exception.
Click here to read the SSA's entire message.

Wednesday, July 16, 2014

SSA's Guide for Evaluating Special Needs Trusts Problematic

The Social Security Administration (SSA) recently instituted a nationally uniform procedure for review of special needs trusts for Supplemental Security Income (SSI) eligibility, routing all applications that feature trusts through Regional Trust Reviewer Teams (RTRTs) staffed with specialists who will review the trusts for compliance with SSI regulations. 
The SSA has also released its Trust Training Fact Guide, which will be used by the RTRTs and field offices when they evaluate special needs trusts.  In an article in the July/August 2014 issue of The ElderLaw Report, New Jersey attorney Thomas D. Begley, Jr., and Massachusetts attorneNeal A. Winston, both CELAs, discuss the 31-page guide in detail and caution that while it is a significant step forward in trust review consistency, it contains “a few notable omissions or terminology that might cause review problems.”  Following is the authors’ discussion of the problematic areas:  
• Structured Settlements. The guide states that additions/augmentations to a trust at/after age 65 would violate the rule that requires assets to be transferred to the trust prior to the individual attaining age 65. It does not mention that the POMS specifically authorizes such payments after age 65, so long as the structure was in place prior to age 65. [POMS SI 01120.203.B.1.c].
• First-/Third-Party Trust Distinction. Throughout the guide, there are numerous references to first-party trust terms or lack of terms that would make the trust defective and thus countable. These references do not distinguish between the substantial differences in requirements for first-party and third-party trusts.
• Court-Established Trusts/Petitions. This issue is more a reflection of an absurd SSA policy that is reflected accurately as agency policy in the guide, rather than an error or omission in the guide itself. This section, F.1.E.3, is titled “Who can establish the trust?” The guide states that creation of the trust may be required by a court order. This is consistent with the POMS. It would appear from the POMS that the court should simply order the trust to be created based upon a petition from an interested party. The potential pitfall described by the guide highlights is who may or may not petition the court to create a trust for the beneficiary. It states that if an “appointed representative” petitions the court to create a trust for the beneficiary, the trust would be improperly created and, thus, countable. Since the representative would be considered as acting as an agent of the beneficiary, the beneficiary would have improperly established the trust himself.
In order for a court to properly create a trust according to the guide, the court should order creation of a trust totally on its own motion and without request or prompting by any party related to the beneficiary. If so, who else could petition the court for approval? The plaintiff’s personal injury attorney or trustee would be considered an “appointed representative.” Would a guardian ad litem meet the test under the guardian creation authority? How about the attorney for the defendant, or is there any other person? If an unrelated homeless person was offered $100 to petition the court, would that make the homeless person an “appointed representative” and render the trust invalid? The authors have requested clarification from the SSA and are awaiting a response.
Until this issue is resolved, it might be prudent to try to have self-settled special needs trusts established by a parent, grandparent, or guardian whenever possible.
• Medicaid Payback/Administrative Fees and Costs. Another area of omission involves Medicaid reimbursement. The guide states that “the only items that may be paid prior to the Medicaid repayment on the death of the beneficiary of the trust are taxes due from the trust at the time of death and court filing fees associated with the trust. The POMS, [POMS SI 01120.203.B.1.h. and 203B.3.a], specifically states that upon the death of the trust beneficiary, the trust may pay prior to Medicaid reimbursement taxes due from the trust to the state or federal government because of the death of the beneficiary and reasonable fees for administration of the trust estate such as an accounting of the trust to a court, completion and filing of documents, or other required actions associated with the termination and wrapping up of the trust.
While noting that the guide, in coordination with training, “is a marked improvement for program consistency for trust review,” Begley and Winston caution advocates that “the guide should be considered as a summarized desk reference and training manual and not a definitive statement of SSA policy if inconsistent with the POMS.”

Friday, April 25, 2014

Using Your Social Security Benefits as an Interest-Free Loan

One little-known Social Security retirement benefits rule is the so-called “do-over rule.” Under this rule, an individual 62 years or older can start collecting benefits but stop the benefits within 12 months of the start, repay the benefits collected, and then still be eligible for their higher benefit amount when they collect at full retirement age or older.

What’s the advantage if the benefits must all be immediately repaid? The strategy can work as a short-term interest fee loan. It makes sense, for example, in cases where an individual has a need for income in the immediate short term, due to an emergency such as a sudden loss of employment, but they anticipate income, i.e. finding a new job or collecting a pension, within the year which would allow for full repayment. For many individuals in the their early 60s, a majority of their assets are tied up in retirement and investment accounts and withdrawals from these accounts would trigger hefty penalties. After “emergency” liquid funds run out, the do-over rule offers a short-term solution. In addition, by drawing on a Social Security “loan” instead of investments, you allow your investments to continue growing.

What if you are unable to pay back the benefits after the 12 months are up? You may still be able to suspend your benefits and increase your ultimate pay-out amount. For example, if you start collecting at 62 but no longer need the income at 66, you could suspend benefits until 70. Then, between the ages of 66 and 70, you would earn delayed retirement credits which would increase the ultimate benefit amount when you collect at age 70.

(Note that up until December 2010, it was possible for you to collect benefits and repay at any time. The law has since changed so that you are limited to a 12-month pay back period. You are also only allowed one “do-over.”)

For more information on how to collect, suspend and pay-back benefits, contact or visit your local Social Security district office. You can click here to find your local office.

Monday, November 26, 2012

Most Men Unaware that Early Retirement Adversely Impacts Their Spouse's Social Security Benefits


According to a recent study released by the Center for Retirement Research at Boston College (http://crr.bc.edu), most men begin drawing on their Social Security retirement benefits at age 62 or 63, rather than waiting until their full retirement age or even age 70.  The early receipt of benefits means that both the husbands and their wives will receive less each month than they would if they waited.

According to the study, written by Steven A. Sass, Wei Sun and Anthony Webb, this early election has no effect on average on the men.  On average, though men will receive a smaller benefit check each month, this will be offset by the checks they receive between the ages of 62 and normal retirement age.  Because this is based, on average, there are obviously exceptions.  For example, men who are in ill health would do better to take early retirement and men who expect to live a long time should postpone their receipt of benefits for as long as possible.

The same statements also hold true for single women, meaning on average they do about as well in terms of lifetime Social Security benefits no matter whether they start earlier and get more smaller checks or start later and receive fewer larger checks.

But for today's seniors, most wives' benefits are based on their husband's work record.  If husbands choose to take benefits before the full retirement age, their wives are penalized twice -- first while their husband's are alive when they get a reduced benefit, usually half of the husband's benefit, and second when the husband dies (which often happens due to women's greater life expectancy) when they receive their husband's benefit rather than their own.

If these decisions were based upon informed appreciation of the adverse impact upon the spouse's benefits, perhaps we could dismiss them as simple life choices. The researchers conclude, however, that they are not, that instead most retiring men simply don't understand the implications of claiming benefits early.  More education may change their behavior, although the researchers note that "financial education has not been especially effective in changing behavior." As an alternative, they suggest a number of potential policy changes, such as requiring spouses to sign off on the decision to claim Social Security before the beneficiary's full retirement age.

Interestingly, while the Social Security Administration's Web site (www.ssa.gov) has a number of excellent calculators to assist beneficiaries in deciding when to retire, none appear to calculate spousal benefits.  Based on the Boston College report, adding such calculators would be a good first step.

To read the report, go to:  http://bit.ly/10PhPBr.

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