Wednesday, October 28, 2009

Married couples can game social security in sophisticated ways (Claim now, stop, claim more later)

Newsweek, on Oct. 26, 2009, published an interesting perspective by Linda Stern, “Gaming Social Security: Increasingly sophisticated retirees are figuring out how to get the most out of the system,” web URL link here.

We’ve talked here about the strategy of returning social security benefits collected if you get a good job again and then restarting at age 70-1/2 at a much higher benefit, as computed by SSA by actuarial formulas based on life expectancy (as is the case with life insurance company annuities). The break-even point is said to be low, with postponing retirement paying off if you live past 78 (especially more likely for women).

Single income married couples (where the wife was a stay-at-home mom and/or [for whatever reason] didn’t earn nearly as much – not always a sequitir, to be sure!! – maybe there was a stay-at-home dad!) may benefit from a cagey strategy. The non-earning spouse claims at 62, and the “breadwinner” (time for Henry Hyde’s “Mom and Pop manifesto” to be sure) waits as long as possible, whereupon the spouse drops the benefits and the earning spouse claims a spousal benefit on his account. This is your “family wage” scenario.

Then there is the “yuppie” scenario, of approximately equal incomes (so 80s sounding, isn’t it!). The lower earning spouse claims at 62 ("the protective social security application"), the other spouse claims (her) spousal benefit at full retirement age, and (his) own slightly later with delayed retirement credits.

People may start hiring financial planners just to game social security.

The article also mentions that some people claim social security early out of fear that it will get cut drastically later during a political binge of “shared sacrifice” (like the dreaded idea of “means testing”). As Obama said, we can’t kick these cans down the road forever. Sometimes claiming social security early can put someone in a higher tax bracket, according to rules on how social security income is taxed (up to 85% in conjunction with other income in some circumstances).

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