Monday, May 21, 2012

A suggestion for friends approaching the Social Security "full benefit" age of 66

The following is a guest post from my old friend and colleague TDU National Organizer Ken Paff, based on his own experience and his calculations about how to maximize retirement benefits. Ken is one of the most amazing and dedicated advocates I know, having dedicated the greater part of his life, and almost the entirety of his working life, to the Teamster reform movement, which I was privileged to serve as the main out-house counsel for about fifteen years. I have added only a hyperlink to his text.

My Birthday Tip for Those Who Can See Age 66 in the Headlights
As the hair has salted, I’ve dabbled and even waded into the welfare state. 

Welfare state, you say?  Is that still around? 

It is. Not as robust as way back when I could live quite nicely on a teaching assistant fellowship. But it’s there, at least for the gray set. 

First thing I learned: the welfare state works best for the middle class.  How perverse that I needed computer-smarts, a well-studied partner, seven pounds of paper and even a professional “health care broker” to guide myself into Medicare. 

Speaking of Medicare, I received birthday greetings from them this morning. I clicked “delete.”  It was probably a reminder to eat more fiber.

Today is my 66th birthday, otherwise known as the onset of Full Benefits in the jewel of the entitlement crown: Social Security.

Two days ago, I signed the papers. But not in the way I expected, and that development is what I’m here to explain.

I should mention that Social Security is better than you think, oh fellow cynic. What else do we have with a steeply progressive payout?  Low income folks get more back for what they paid in and thus greater income replacement, than those in the uptown brackets.

The Choice and How to Make it

At age 66, you can collect Full Benefits and still work. (Age 66 is a temporary plateau; in 2020 it will start creeping up and reach 67 by about 2027. Thank Reagan.) 

But Full Benefits is relative. You can choose Delayed Benefits, and your benefit level will grow by 8% a year till age 70, for a 32% boost over Full Benefits (The 8% is not compounded, hence only 32%.)

With Martha’s approval, I opted for the Full Benefits cash now, after calculating the advantage of taking the money and investing it.  I have other friends, including one who is freshly 66, who have opted to delay. They are probably planning to show off their fatter checks after they reach 70.

But then I learned that I could do both at once. The SSA doesn’t exactly hide this nifty option, but I had to go deep into the bowels of their website to find mention. 

In talking to friends, I find folks who could use this who are in dark. So I’m here to spread the news.

The punch line:  You can opt right at 66 to collect benefits based on your spouse’s social security record (or, as in my case, ex-spouse’s, if you were married 10+ years), and let your own account build up at 8% a year (SSA calls it 2/3 of 1% per month), and then switch later to your bulked-up benefit. 
Starting this month, social security will slip ½ of benefits into my bank account each month. Not ½ of my earned benefits, but ½ of based on that spousal account, which is a similar amount for most folks. Only in musicals do the rich and poor get married.

 The ½ is because spousal benefits are ½ of earned benefits.

And, at a later date – anytime I choose, but at least by age 70 – I will switch to benefits based on my highest 35 years average earnings, which will be 132% x  my Full Benefit + COL increases, if I wait till age 70.

Further, if you are currently married, you can both do this – eat half the cake baked by your spouse, while also letting your own cake rise. I think this double-dip effect works best if you have similar ages, but it works at least in part for the May-Decembers also.

The poor usually can’t afford to delay benefits to bulk up, while collecting ½ now. The welfare state indeed works best for the middle class. But do take advantage of it, while it’s still there.