Get What's Yours: Book Overview

Are you confused about how Social Security benefits work? Do you want to make sure you're getting every penny you're entitled to in retirement?

In Get What's Yours, authors Laurence J. Kotlikoff, Philip Moeller, and Paul Solman break down the complex world of Social Security. They explain the various benefits available and offer strategies to maximize your payouts over your lifetime.

Let's dive into the key insights from this helpful book and learn how you can get what's yours from Social Security.

Overview of Get What's Yours

Ensuring your financial security during retirement is no easy task. The Social Security system in the United States is complex, with a maze of rules and calculations that determine your eligibility and benefit amounts. In the Get What's Yours book, authors Laurence J. Kotlikoff, Philip Moeller, and Paul Solman guide you through the intricacies of Social Security.

They explain the various types of benefits available, including retirement income, spousal support, child benefits, and disability aid. The book also explores strategies to maximize your lifetime Social Security payouts, such as strategically timing when you file and understanding how your marital status impacts your benefits. With this comprehensive overview, you'll gain a thorough understanding of the Social Security system and how to navigate it effectively.

Understanding Social Security Benefits

Social Security offers a wide range of benefits, each tailored to specific needs. Let's break down the main types of benefits you might be eligible for:

Retirement benefits are the most well-known, but that's just the tip of the iceberg. You can also receive spousal assistance, child support, widow provisions, and disability help. The system is designed to provide a safety net not just for retirees, but for their families too. For instance, if you pass away, your children who are either young or have disabilities, as well as dependent parents and even former spouses, might be able to claim benefits based on your work record.

To qualify for spousal benefits, your partner needs to already be receiving their own retirement benefits. You can start claiming retirement benefits from age 62, but there's a catch - your benefits will be reduced if you claim before your full retirement age. For child benefits, the rules are a bit different. Children under 18 or those who became disabled before turning 22 can receive benefits. If you're a surviving spouse, you need to have been married for at least nine months to be eligible, and you can start claiming these benefits at age 60 (or 50 if you're disabled).

The way these benefits are calculated can get pretty complicated. The Social Security Administration looks at factors like your full retirement age and your primary insurance amount. This amount is figured out using a complex formula that averages your indexed monthly earnings over a certain period. There are some special rules too. For example, if you're a spouse caring for a child who's either under 18 or disabled, you can get spousal benefits regardless of your age. For children who've lost a parent, their survivor benefits are set at 75% of the Primary Insurance Amount.

Navigating the Complexities of Social Security

If all of this sounds confusing, you're not alone. The Social Security system is incredibly complex, and understanding it fully requires more than just a quick glance. Let's dive deeper into some of the intricacies:

To really get a handle on Social Security, you need to understand concepts like Average Indexed Monthly Earnings (AIME) and how Primary Insurance Amounts are determined. You also need to know your full retirement age - that's the age when you can collect your full retirement benefits without any reduction for early retirement. For those born after 1960, that age is 67.

The calculation of your AIME takes into account your past earnings, and your Primary Insurance Amount (PIA) shows the full benefits you're eligible for when you reach 67. But here's where it gets tricky: the system determines your benefits using a calculation method that looks at your highest 35 years of earnings. And if you decide to retire before your full retirement age, you'll face penalties that reduce your benefits.

Many people find these complexities overwhelming, and it's easy to see why. The rules are numerous and interconnected, making it challenging to ensure you're making the best decisions for your financial security. Even seemingly simple aspects of employment can become complex when it comes to what's included or excluded from Social Security coverage.

Given all this complexity, it's often a good idea to seek guidance from knowledgeable advisors or reliable sources. They can help you navigate the system and make sure you're fully capitalizing on your benefits. Remember, understanding these intricacies isn't just about following rules - it's about securing your financial future.

Maximizing Your Social Security Payouts

Now that we've covered the basics, let's talk strategy. How can you make sure you're getting the most out of Social Security over your lifetime? The authors of Get What's Yours emphasize the importance of patience, timing, and considering your personal circumstances.

One of the most crucial strategies is deciding when to file for your benefits. Let's look at an example: A couple, both 62 years old with incomes that exceeded the FICA taxation threshold for Social Security, would be entitled to about $50,000 annually if they started receiving benefits right away. But here's the kicker - if they wait until they're 70 to start their benefits, their payments could increase by a whopping 76%!

Despite this potential increase, only about 2% of Americans choose to wait until 70 to start their Social Security benefits. Many people believe that whether you start early or delay, you'll end up with the same total amount over your lifetime because the payments are adjusted based on when you start. But this isn't always true, especially if you live longer than average.

There's also a special provision for those who turned 62 before January 2, 2016. These folks can receive spousal benefits for up to four years, until they turn 70. If both members of a couple were 62 by January 1, 2016, they could potentially boost their Social Security income by first filing for spousal benefits after a strategic delay, then later applying for their own retirement benefits.

Most financial advisors agree that it's best to delay starting your Social Security benefits if you can. Starting to collect before your full retirement age leads to a permanent decrease in your benefits. So if possible, try to wait until you reach your full retirement age, or even later.

Considering Personal and Family Circumstances

When you're planning your Social Security strategy, it's crucial to consider your unique situation. This includes factors like your work history, whether you're single or married, and how long you expect to live.

For married couples, there's a particularly advantageous strategy if one spouse earned significantly more than the other. In this case, it's often best for the lower-earning spouse to delay their Social Security benefits until age 70. This ensures that the surviving spouse will be eligible for survivor benefits based on the higher-earning partner's retirement benefits.

Here's another tip: Once you reach your full retirement age and start collecting benefits, you can choose to suspend these payments and restart them at age 70. This will lead to enhanced benefits. But keep in mind that delaying past 70 won't lead to any further increases - the accumulation of benefits stops at that point.

It's also important to understand how your earnings affect your benefit amount and to be aware of the necessary procedures for spouses to obtain their benefits. Some people have faced financial difficulties due to mistakes in their application procedures, especially after losing a spouse. Not fully understanding when to stop and later restart benefits can result in significant economic drawbacks by age 70.

The bottom line? Understanding your personal and family circumstances, along with having the patience to choose the most opportune time to claim, is key. With this knowledge, you'll be better equipped to navigate the complexities of Social Security and ensure you get all the benefits you're entitled to.

Impact of Marital Status on Benefits

Your marital status can have a significant impact on your Social Security benefits. Whether you're married, divorced, or widowed, there are different rules and strategies to consider.

For married couples, there's an option to apply for benefits and then put a hold on the claim. For example, Cheryl can start collecting spousal benefits when Phil turns 70, and she can continue receiving these benefits until she reaches the same age, assuming she was at least 62 years old before January 2, 2016. However, recent laws have changed this scenario. Now, if seniors choose to suspend their pension payments, they'll also prevent their spouses or dependents from receiving any supplementary benefits during this interruption.

If you're divorced, there are specific rules you need to be aware of. If your marriage lasted 10 years or longer before divorcing, you might be eligible for benefits based on your ex-spouse's record. People who reached age 62 before January 2, 2016, can choose to receive their ex-spouse's full benefits when they reach Full Retirement Age and postpone receiving their personal retirement benefits until they turn 70. It's worth noting that the benefits assigned to ex-spouses after a divorce don't impact the amounts given to a current spouse and children, as these aren't subject to the Family Maximum Benefit limitations.

Importance of Survivor Benefits

Survivor benefits are particularly crucial, especially for women who often outlive their male partners. As a widow or widower, it's essential to receive the full advantages based on your deceased spouse's employment record.

However, the amount a surviving spouse is eligible to receive can be constrained if the deceased spouse began collecting retirement benefits before reaching their full retirement age. This is due to particular calculations such as the RIB-LIM formula. To protect her financial stability and potentially secure a larger benefit, a widow can choose to collect survivor benefits when she reaches her Full Retirement Age.

Widows often face challenges in fully utilizing their benefits. Deciding when to start receiving these benefits, along with one's retirement fund, can significantly influence their financial outcomes. For instance, individuals who have been widowed may initially collect benefits designated for survivors and later switch to their own retirement entitlements, should those be more substantial, especially if they postpone their claim until they reach 70 years of age. However, if a widow chooses to collect both benefits before the specified time, she might encounter a decrease in the amounts because of penalties for early filing.

Recent Changes to Social Security Rules

The Social Security system isn't static - it undergoes changes to ensure its sustainability and effectiveness. The 2015 Bipartisan Budget Act introduced several significant modifications that you should be aware of.

One major change was the cessation of the "file-and-suspend" tactic. This was previously a common method among married couples to maximize their Social Security advantages. The strategy allowed one partner to start receiving retirement benefits and then suspend them, which in turn allowed the other partner to claim spousal benefits. However, this option was restricted six months after the new laws were implemented.

The rules for evaluating and then pausing payments upon reaching full retirement age have also been revised. People who hadn't reached 62 years old by January 1, 2016, are now deemed to be requesting all qualifying benefits upon filing for either spousal or retirement benefits. While an individual has deferred their retirement benefit, dependents like spouses, children, or ex-spouses cannot claim benefits based on that individual's earnings record.

These modifications have made it essential to carefully consider when and how spouses qualify for benefits, altering many strategies that were once commonly used. If you were 62 years old at the beginning of 2016 but hadn't yet turned 70, you might still be eligible for certain grandfathered strategies, although the window to leverage these has greatly narrowed.

Long-term Financial Stability Concerns

While these changes aim to improve the system, concerns about the long-term financial stability of Social Security persist. The program carries significant financial commitments that have not been sufficiently financed.

The 2015 report from the Social Security Trustees revealed a continuous fiscal deficit of $26 trillion. To ensure the continued payment of all planned benefits, a substantial and immediate hike in Social Security FICA taxes by 31% would be necessary. As the number of retirees grows and wages increase past the threshold subject to taxation, the pressure on the system's sustainability grows stronger.

Official forecasts point to only about 75% of promised benefits being payable in the future, assuming no changes in current laws. Moreover, the core of the trust fund is characterized by its holdings in government bonds, which are essentially commitments to repay debts, thereby questioning the notion of a dedicated reserve set aside for supporting the Social Security program.

The actuaries' assessment of the system's unfunded liability revealed an increase approaching one trillion dollars over the course of a year. This suggests that minor adjustments alone might not be enough to ensure the enduring stability of the system.

Potential Future Modifications

To address these challenges, several changes have been suggested. These could involve increasing tax rates, altering the distribution system, and adjusting the retirement age to align with the rise in average lifespan.

Thorough reforms could entail modifications to the benefits framework or rules, potentially including revisions to the coordination of various Social Security systems. Historical data suggests that in periods of turmoil, changes similar to those made during Alan Greenspan's tenure could serve as a model for subsequent adjustments.

However, postponing necessary adjustments to the policy could result in the future imposition of substantial and potentially disruptive modifications to safeguard the fiscal solidity of the program. This might necessitate more severe measures down the line.

The ongoing functionality of the Social Security program is under pressure due to shifting population dynamics and economic constraints, underscoring the need for significant changes. Persistent worries regarding the enduring fiscal stability of the program indicate that additional adjustments may be forthcoming. As you plan for your retirement, it's important to stay informed about these potential changes and how they might affect your benefits.