“Get What’s Yours” in Social Security Benefits

The $50,000 Dollar Tennis Game

Larry Kotlikoff is a professor of economics at Boston University, expert on Social Security, and weekend-warrior tennis player.  Several years ago he was playing tennis with Paul Solman, the business and economics correspondent for the PBS News Hour.  I don’t know who won the tennis game but it was definitely a good day for Paul.  His opponent and the timing of the game were fortunate coincidences leading to both a financial windfall and a business opportunity.            

On the day of the tennis game Paul and his wife were approaching retirement age (he was nearing 65 and his wife was almost 66), and in between points Larry asked Paul what they were going to do about Social Security.  Paul informed Larry that he had it all figured out.  Both he and his wife would wait until 70 to start taking benefits so they could get the maximum they were entitled to.

Larry informed Paul that they needed to take a break to talk.  He then told Paul that when his wife turned 66 (her “full retirement age”) she should file for Social Security, then “suspend” her benefits.  When he reached full retirement age the next year he should file for Social Security and apply just for his “spousal benefit”.  Then they could each file for their own benefit when they reached 70 as they had previously planned. 

This would allow Paul to take a spousal benefit (half of his wife’s full retirement benefit) until he reached 70.  Larry figured this would be over $12,000 a year for four years, or just about $50,000.  Paul informed Larry that, if true, he would buy him dinner. 

The irony of the story is that Paul isn’t one of the ‘financially illiterate” Americans we hear the media lament constantly.  In fact, as a financial reporter he knows more about finances than most of us.  Larry figured if Paul had no idea how to get the most out of Social Security most other people didn’t either.  He decided to write a book about it and he invited Paul and another financial journalist, Philip Moeller, to join him. 

Paul and his wife followed Larry’s instructions and things worked out just as Larry said they would.  The end result was a $50,000 dollar windfall for Paul, a free dinner for Larry, and the excellent book, Get What’s Yours: The Secrets to Maxing Out Your Social Security, for the rest of us.  Not bad for an afternoon of tennis.

The Complexity of Social Security

Like Paul, I consider myself knowledgeable about personal finances, and like Paul, I had no idea how complex Social Security is.  There are numerous benefits (personal, spousal, widow or widower, divorced spouse, etc.) each with its own unique rules.  Add the age differences and varying work histories of spouses and there is an almost endless number of possible times and ways to take your Social Security, only one of which will get you the maximum benefits you have earned. 

If you think you can rely on the Social Security Administration (SSA) to help you make the right decision, think again.  Just as the IRS will process your tax return, but not tell you the most beneficial way to prepare it, the SSA will process your Social Security application, but will not tell you if you are applying in the way that will maximize your benefits. 

The result is predictable: most of us get less out of the program than we have earned.  In fact, the Center for Retirement Research at Boston College did a study that put the lost benefits in 2006, just from spouses failing to coordinate their benefits – the mistake Paul and his wife almost made – at over $10 billion per year.

Delaying Benefits is Usually Best Bet

The book is a big proponent of delaying benefits for as long as possible.  Benefit amounts go up 8% per year from age 62 to 70, and yet most people start taking benefits as soon as they are eligible.  The result is a significantly smaller monthly check for the rest of your life than you would get if you waited.  This also leads to smaller spousal, and widow or widower benefits. 

The book advocates looking at Social Security not just as an income stream, but as insurance against outliving your money.  Delaying benefits makes the insurance aspect of your benefit much more valuable.  This is especially true if one spouse made significantly more than the other and dies first.  Delaying benefits, which increases the survivor’s monthly income, is a great gift to leave the surviving spouse. 

Do Your Homework

The bottom line is that the decision on when, and how, to take Social Security benefits is one of the most important financial decisions many of us will ever make.  A mistake could cost hundreds of thousands of dollars and might be irreversible.  In spite of this most of us don’t give the decision the time and effort it deserves. 

The book states, “Every year, couples make uninformed claiming decisions that deny them and their family members access to billions and billions of benefit dollars. With retirement prospects dimmer than expected for tens of millions of baby boomers, claiming every possible dollar in Social Security should be a national pastime. Instead, it’s an American afterthought.”      

If you are approaching retirement age make sure you do your homework before making any decision concerning Social Security.  If someone you know and love is approaching retirement age, don’t let them make any decisions concerning Social Security as an “afterthought”.  Knowledge is power, and in this case perhaps a great deal of money. 

Get What’s Yours: The Secrets to Maxing Out Your Social Security is a great place to start in arming yourself with the necessary knowledge to maximize your Social Security benefits.  Given the complexity and dryness of the topic the book is surprisingly interesting and easy to read and the knowledge it conveys is invaluable.  I highly recommend it.

Maximize My Social Security Software

In addition to the book, one of the authors, Larry Kotlikoff, has developed Maximize my Social Security, which is online software that can help you decide the best time and strategy to use when claiming your Social Security benefits.  While I haven’t personally used the software, Kotlikoff has a sterling reputation and the software has earned high praise from both the press and users.  A household license for the software is $40 per year.  This is a small price to pay for expert help in making such an important decision.  It could be the next best thing to a personal tennis game with Larry.   

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