Little Known Social Security Benefits (Bankrate.com)

RETIREMENT

7 little-known Social Security benefits

ByJennie L. Phipps• Bankrate.com

Retirement» 7 Little-Known Social Security Benefits

  

That FICA guy won't be your buddy

In the first season of "Friends," Rachel Green looks at her first paycheck as a waitress and asks, "Who's this FICA guy, and why is he getting all my money?"
That's one hard lesson about Social Security. Another is that when it's time to claim, you can't depend on the Social Security Administration to be your personal adviser.
In an effort to save time and cut costs, Social Security employees generally don't give case-specific advice. So that means you are on your own to make the most important financial decision of a lifetime. You have to read the rules and do the research yourself.
William Meyer, whose website, Social Security Solutions, gives Social Security advice for a fee, says you also can't depend on Social Security to follow instructions you give them electronically. If you have a request that is not the most common choice, you'll need to go to the Social Security office and make the request in person, he says.

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Myriad ways to claim the goodies

There are many ways a married couple can decide to take their Social Security benefits, according to Alicia Munnell, director of the Center for Retirement Research at Boston College. You can't ask Social Security to list them all, so what's the right choice?
Munnell says it's hard to beat waiting until you're 70 to begin benefits because the monthly payment is 76 percent higher than it would be if you had started to take benefits at 62 and 32 percent higher than it would be if you claimed at age 66.

 

Betting against death

On the other hand, some people advocate drawing Social Security benefits at the first opportunity.
Doug Carey, who founded the financial planning software firm WealthTrace, says Social Security doesn't see itself as an oddsmaker, but it does require you to bet on your longevity. He offers this chart as proof. It graphs the break-even point for a person who earned the inflation-adjusted equivalent of $70,000 per year for 35 years. If this person waits until 70 to claim Social Security and lives until at least age 90, he'll accumulate almost $162,000 more in benefits than he would if he had claimed at 62. But there's a possibility of losing the bet and getting nothing.
Retired law professor and Social Security expert Merton Bernstein says the longevity bet odds are bad, so claim early. "You never know when the bell will ring. I subscribe to the Woody Allen principal: 'Take the money and run.'"

A reward for delaying divorce

If you're not happy in your marriage after 9 1/2 years, hold off before hiring a divorce attorney.
"Stay married for at least 10 years," says San Francisco-based Bank of America personal banker Raphael Gilbert.
Why? That's what it takes to stake a claim to your ex-spouse's Social Security benefits. If you terminate the marriage after nine years and 11 months, you're out of luck.
If you make it for 10 years, you can collect a Social Security benefit based on up to half of your ex's earnings  

Bigger reward if ex has 'departed'

And we have another dirty little secret for you. If you haven't remarried, chances are your ex-spouse is worth more to you dead than alive -- especially if he or she was a high earner. Once an ex-spouse passes away, you'll be treated just like a widow or widower. If you are at least 60, you'll be able to collect your late-spouse's benefit and allow your own benefit to grow unclaimed until you reach age 70, when you can switch if your own is higher, according to Carol Thomas, who worked for the Social Security Administration for 28 years and answers questions about Social Security at RetirementCommunity.com.
Assuming your ex will dwell on Planet Earth to a ripe old age, the longer your ex-spouse delays claiming Social Security, the better it is for you. So, if you get a chance, encourage your ex to work until age 70. Then, when it's all over, you'll get to claim half of his or her maximum Social Security. Or once you and your ex-spouse reach full retirement age -- usually 66 -- you can claim half your ex's benefit and let your own grow untouched until you're 70, says Thomas. Consider it payback.

  

More flexibility for widows and widowers

Social Security does a good job of explaining widow and widower benefits, but Dan Keady, director of financial planning for TIAA-CREF Financial Services, says it doesn't clearly spell out a key difference between widow/widower benefits and spousal benefits. A widow/widower can begin benefits based on his or her own earnings record and later switch to survivors benefits or begin with survivors benefits and later switch to benefits based on his or her own record -- even if the surviving spouse is filing before full retirement age. You can't do that with spousal benefits.
In other words, a widow can begin drawing a survivors benefit on her late husband's Social Security when she is as young as 60, but only at a reduced rate. Then she can choose to leave her own Social Security alone, allowing it to grow in value until her full retirement age -- or even age 70. This works for widowers, too.

 

SSDI step 1: Hire help

When you apply for disability insurance, Social Security doesn't tell you that your first step ought to be hire a lawyer or other expert adviser. Allsup, a private firm that advises people about how to get SSDI, says Social Security doesn't even make it clear that an applicant can have representation from the very beginning of the application process. As a result, lots of people don't get help until they've been initially denied, and that slows down the process unnecessarily, according to Allsup spokeswoman Mary Jung.
Jung also warns SSDI applicants to be accurate and precise on the application. Small mistakes can make a big difference. Minimizing how much exertion was required to perform the person's job is a common mistake that frequently results in denial of a claim.  

35 years is the magic number

The Social Security website offers an explanation of how your benefits are calculated, but it's a little hard to follow. You can find a simpler explanation at MyRetirementPaycheck.org, a website sponsored by the National Endowment for Financial Education.
Your Social Security payment is figured using a complex calculation based on a 35-year average of your covered wages. Each year's wages are adjusted for inflation before being averaged. If you worked longer than 35 years, the government will use the highest 35 years. If you worked for less than 35 years, they'll average in zeros for the years you are lacking. You don't have to be a math genius to figure out the impact of that -- it drags down your average. If you can avoid zeros by working a couple of years longer, you'll increase your Social Security payment.

 

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Getting the Maximum Social Security Benefit (New York Times)

November 15, 2013

The Payoff in Waiting to Collect Social Security

By TARA SIEGEL BERNARD

If an insurance salesman offered a product with a guaranteed income of nearly 7 percent for life, it would be foolish not to question whether it was too good to be true.

But the fact is, such a product exists. And it’s “on sale” right now, for many people 62 and older, at the Social Security Administration.

Some people nearing or on the cusp of retirement consider buying immediate annuities from insurance companies: they hand over a big pile of cash to an insurance company in exchange for a guaranteed monthly income payment for life. But you can also “buy” an annuity, so to speak, from Social Security, and it’s a far better deal.

Think about it this way. If you delay collecting your benefits, which can be claimed anywhere from age 62 to 70, the money you leave on the table each year is basically a payment for a much higher stream of lifetime income. And that money will buy significantly more income, perhaps 50 percent more for a couple, than buying an annuity through a commercial insurer.

“It’s almost a no-brainer,” said Steven A. Sass, program director of the Financial Security Project at the Center for Retirement Research at Boston College, who analyzed the numbers. “Depending on how long you delay, you will get an income equal to about 6 percent or more of the savings used to produce that income. You will get that income, rising with inflation, with no risk, sent to you by the U.S. government.”

Delaying benefits requires leaving sizable sums of money on the table, which, for many sixty-somethings, could be too difficult — psychologically or financially. Some want to start collecting what they’re owed, while others simply need the money to live on. And individuals who aren’t healthy should clearly start collecting benefits as soon as they’re eligible.

But for people who are yearning for more sources of guaranteed income, this strategy — buying more income from Social Security — is especially attractive now when interest rates are low. Commercial insurers cannot compete on price, experts said, and they also have overhead that the federal agency does not. “Annuities look particularly horrible right now because the insurers must invest in bonds,” Mr. Sass added, “and bond interest rates are brutally low.”

Consider a couple with a 65-year-old husband and a 62-year-old wife who decide to buy an immediate annuity — one where payments would keep pace with inflation, and that would continue to pay out as long as either spouse was alive. If they paid $100,000 to an insurer, they would receive in exchange guaranteed lifetime income of about $3,840 per year, according to a quote from Vanguard. That translates into a guaranteed income stream of 3.8 percent a year on the money they used to buy the annuity.

Next, consider what sort of income stream they could “buy” from Social Security by waiting to collect benefits. Assume the husband, who is eligible to collect $12,000 at age 65, delays claiming until he is 66. By waiting the extra year, he would get a benefit increase of $860, for a total of $12,860.

But if he had to buy that extra $860 annual income, he would have to pay about $22,500 to an insurer. A much cheaper way of getting the extra income would be to wait an extra year for his benefits, and dip into his savings for the $12,860 he is not collecting from Social Security. (Or he could potentially work an extra year and not dip into his savings.) 

By doing this, he receives a guaranteed income of 6.7 percent when he “buys” the income from Social Security, according to Mr. Sass’s calculations, compared to an income of 3.8 percent he would receive from an insurer. 

“You will not get anything close to that anywhere else,” Mr. Sass added.

Now let’s imagine the retiree could afford to wait until he was 70 to collect benefits. By waiting those five extra years, his annual benefit would increase to $17,000 — $5,000 more than the $12,000 he could get at 65. 

But if he had gone to an insurer to purchase that extra $5,000 in annual income, it would cost more than $130,000, according to Mr. Sass’s calculations. The less expensive route would be to delay benefits, leave the $60,000 on the table, and also eat into his savings. That means he would be getting a 5.9 percent income if he “bought” the income from Social Security versus the 3.8 percent he would receive from an insurer.

These income rates also compare rather favorably to the income you can generate by a diversified portfolio of stocks and bonds. “Given the volatility of such a portfolio, there is a lot of debate and ongoing research about how much you can safely withdraw without outliving your savings,” Mr. Sass said. Some research has found that the conventional wisdom — taking out 4 percent annually — could be too high. But for argument’s sake, let’s say it’s somewhere between 3 and 4 percent of the portfolio, and rises each year with inflation. That means you could initially pull out somewhere between $3,000 and $4,000 for every $100,00 invested.

Delaying Social Security is a bit more attractive for married couples because you’re also getting something free that you would have to pay for in the commercial market: the survivor’s benefit. If the higher-earning spouse dies first, the survivor will continue to receive that benefit for the rest of his or her life. How much does it cost if you had to buy it? If we revisit the couple with a 65-year-old husband and 62-year-old wife, a survivor benefit for the wife reduces benefits by nearly a third, according to annuity pricing quotes from Vanguard. (You’ll also pay extra for an immediate annuity whose payments rise with inflation.)

“If you have a traditional couple where one worked a great deal and another didn’t work, by delaying claiming you can improve the survivor benefit substantially,” said Olivia S. Mitchell, an economics and public policy professor at the Wharton School of the University of Pennsylvania. “If you care about your wife or husband, that might also help them in old age.”

The benefits rise so that you will receive the same amount over your lifetime, regardless of when you begin collecting, if you live to average life expectancy. But if you are reasonably healthy, the payoff can be substantial. If the higher earner — or any worker — can hold off until they turn 70, the benefits collected will be at least 76 percent more than if payments started at 62.

Take those who are set to receive $1,000 a month at their full retirement age, which is 66 for people born 1943 to 1954, though it rises to 67 for younger people. A retiree who signs up for benefits at age 62 will collect only $750 a month. The extra credit earned by waiting until age 70 would increase that payment to $1,320 a month.

Your benefits generally rise by 8 percent each year you wait to collect beyond your full retirement age.

“There is this enormous payoff to waiting,” said Alicia Munnell, director of the Center for Retirement Research at Boston College. “And nobody knows that.”

Well, some people do. Of the 1.4 million men and nearly 1.3 million women who began collecting benefits in 2012, about 1 percent of the men and nearly 2 percent of women were at least 70.

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Social Security Payback Loophole Eliminated

Wednesday, December 8, 2010

Mark Lassiter, Press Officer For Immediate Release

News Release

SOCIAL SECURITY SSA Press Office 440 Altmeyer Building 6401 Security Blvd. Baltimore, MD 21235 410-965-8904 FAX 410-966-9973

Social Security Publishes New Rule Revising Withdrawal Policy Rule Also Limits Voluntary Suspension to Prospective Months

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. The agency is changing its withdrawal policy because recent media articles have promoted the use of the current policy as a means for retired beneficiaries to acquire an "interest-free loan." However, this "free loan" costs the Social Security Trust Fund the use of money during the period the beneficiary is receiving benefits with the intent of later withdrawing the application and the interest earned on these funds. The processing of these withdrawal applications is also a poor use of the agency’s limited administrative resources in a time of fiscal austerity -- resources that could be better used to serve the millions of Americans who need Social Security’s services. Although the new rules are effective immediately, the agency is providing for a 60-day public comment period. The agency will consider any relevant comments received and publish another final rule to respond to comments and to make any appropriate changes to the rule.

Social Security recommends that comments be submitted via the Internet. To view the new rule or to comment, visit the Federal eRulemaking portal at www.regulations.gov and use the Search function to find docket number SSA-2009-0073. ###