It’s time to visit the Department of There Must Be A Pony In Here Somewhere. Our motto: “If life gives you lemons, add vodka.”
The occasion of this excursion to pan for the slimmest glimmer of silver deep in the darkest clouds of recent events is occasioned by the budget bill signed Nov. 2. The two-year deal delivered a potential wallop of $50,000 or more to anyone who isn’t 66 or won’t be by May. That’s because, in less than 180 days, the bill eliminates the main benefit of the increasingly popular file-and-suspend strategy for claiming Social Security.
Here’s how it works for a retiring couple we’ll call Rollo and Drucilda. Rollo is a high-income worker born in 1949 who hits his full retirement age of 66 this year and becomes eligible for his maximum benefit of $2,663 a month. But if Rollo doesn’t claim benefits until age 70, his payment will increase by 8 percent a year, leaving him lots of money to take Drucilda to Disney World and still afford real Metamucil instead of the generic stuff.
So Rollo suspends his benefits, but because he has filed for them, his lovely wife, Drucilda, can immediately claim half of what would be his monthly payment as her own spousal benefit, or a reduced amount if she is between 62 and her full retirement age. When Rollo hits 70, he files to collect his now-increased maximum retirement benefit, and Drucilda can do likewise.
That gives Drucilda $63,912 in spousal benefits during the four years she and Rollo continue to work, plus the increase in monthly payments they’ll both collect by waiting to claim their own benefits at age 70. Now when they retire, Rollo and Drucilda won’t need to steal Sweet’N Low from the early bird special at the diner. Instead, they can afford to cover the bed with the stuff and wallow naked in a mountain of little pink packets.
Cat food or floor wax? Who knows!
Depending on your point of view, file-and-suspend is either a nihilistic fraud perpetrated by undeserving fat cats, or it’s a crafty grassroots fix that keeps mom and pop from subsisting on discount expired cat food during their dotage. It’s a loophole. It’s a lifeline. It’s a dessert topping. It’s a floor wax.
What it really amounts to is anybody’s guess. Nobody knows how many Social Security recipients use the strategy. Nobody knows whether they’re rich or poor. And nobody knows either how much closing this pernicious loophole/pulling this essential rug out from under grammy and gramps will save in the future or what it costs us now.
Just because Congress and President Barack Obama went bowling in the dark while blindfolded doesn’t mean you should, too. Unfortunately, that’s how most people decide how to claim their Social Security benefits, notes Gary Nustad, executive director of strategic development at Michigan Financial Companies, an advisory firm in Southfield.
“Most people have made their Social Security decision based on emotion, not on logic, without looking at all of their financial resources,” Nustad says.
This is easily understood when you remember one of the prime Funny Money Rules of Finance: If you are going to get money from the government — especially money you legally are entitled to collect — you will have to climb over barbed wire and broken glass first. After you pee in jar. In triplicate.
This is why Social Security rules read like a combination of the infield fly rule and the qualifying algorithm for the Bowl Championship Series, filtered through the U.S. Tax Code and translated into Swedish.
At 62 1/2, bork, bork, bork!
Which means this isn’t a case of, as the Swedes say, “Bra karl reder sig själv” (“A good man will cope on his own,” for those of you who don’t speak fluent Social Security). A good man, maybe, but not a smart man.
Before selecting your Social Security options, start by familiarizing yourself with the options, either through online research or a trip to your local library. Then, find an experienced financial planner.
Some advisers carry the National Social Security Advisor or the Certified in Social Security Claiming Strategies designation. These two newer bona fides indicate some training, and were created by private advisory firms. The jury is out on how effective they are and there doesn’t seem to be a very robust disciplinary process. Other adviser designations held by some attorneys and non-financial planners also look less than thorough, such as the Certified Senior Advisor designation, which can be awarded after just three days of study.
A better approach is to find an established, respected financial adviser who has experience calculating Social Security benefits. Check their credentials, complaint history and background thoroughly. A good starting point is a fee-only Certified Financial Planner, who is legally bound to put your interests ahead of his or her own commissions or other incentives.
Just because the file-and-suspend strategy is being suspended doesn’t mean there aren’t many other options to maximize your Social Security benefits. One study found file-and-suspend benefited only 40 percent of a sampling of retirees. Which proves that nearly all of us need help navigating the murky financial waters of Social Security. Or as the Swedes say, “Det man förlorar på gungorna tar man igen på karusellen.”
That’s literally, “The loss on the swings is won back on the merry-go-round.” I haven’t the faintest clue what that means, but let’s settle on, “Don’t play around when it comes to Social Security!”