The Social Security Handbook has 2,728 separate rules governing benefits. But that’s just the handbook. The Social Security Administration operating system has thousands more rules and interpretations, putting to shame the 72,000 pages often cited by political candidates about the Internal Revenue Code.
It’s no wonder that most retirees give up between 20 and 30 percent of the benefits they are entitled to; the rules and guidelines are overwhelming. And it’s no wonder that nearly half of all retirees accept a reduction of between 20 and 25 percent of their full retirement benefit and forgo a whopping 32 percent increase in income by not waiting until age 70.
With help it is extremely difficult to get it right — but getting it right on your own is nearly impossible. A 62-year-old couple has over 100 million combinations of months for each of the two spouses to take retirement benefits, take spousal benefits and decide whether or not to file or suspend retirement benefits. For couples with significant age differences the number of combinations can be even more daunting.
It was just a few years ago that the financial industry doled out advice and recommendations based on a simple, unsophisticated break-even calculation. But ever since a retired SSA employee began writing a weekly column, the general public and the financial services industry have begun to understand what in the past only the rule makers understood. The result of these revelations is that many of the strategies that have been brought to light have become Congress’s most recent victims.
The last major change was during the Reagan Administration, when, in an effort to stem the tide of budget deficits, a bipartisan solution was devised to tax retiree benefits instead of cutting them. This achieved the same result in a more politically expedient manner than an outright reduction.
Now, unlike an IRA that one contributes to before taxes and pays taxes on later, we have to pay taxes both going in and coming out.
In a provision labeled “closure of unintended loopholes,” the recent budget compromise eliminates two popular claiming strategies for those born after January 1, 1954: file and suspend; and filing for a restricted claim of spousal benefits. For many couples, this strategy translates to a six-figure windfall. For anyone born after 1954, you just lost a great benefit.
The cold hard truth about government money is that you don’t own it and you cannot control it. But for those of you eligible for Social Security, you should do your homework. For everyone else, Congress still has 2,728 rules and hundreds of thousands of provisions that it can simply hit the delete key on to solve their problems.
Author of “Take Back Your Money” and “The Ten Truths of Wealth Creation,” John E. Girouard is a registered principal of Cambridge Investment Research and an Investment Advisor Representative of Capital Investment Advisors in Bethesda, Maryland.