Retirement Plan Blog

A while back I wrote that there's been a Social Security "early bird special" taken by most married men. Recent experience has been that approximately 50% of those eligible for taking Social Security at age 62, the earliest possible age do so. The financial implications can be huge. If you're a married man and have been the primary wage earner. Then, your decision to take early Social Security benefits can result in a reduction in your wife's survivor benefits.

But taking Social Security sooner can also result in a reduction in benefits - for anyone - of approximately 25% if you're one of the Boomers. Here's a chart  published by the Women's Institute for a Secure Retirement (WISER) who also maintain a blog. The chart illustrates the percentage of reduction in benefits for those retiring at age 62 and the percentage increase in benefits for those working beyond full retirement age.

That is, if you can afford to do that.

Picture above, Waiting in Repose, by artist Dale Wicks.

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Over the last several years, the Social Security Administration (SSA) has been faced with staffing reductions and an increased demand for services challenging its field offices to manage work while continuing to deliver quality customer service.  Now consider that the first wave of approximately 80 million baby boomers is reaching the age of retirement eligibility, and the SSA has a massive challenge ahead of it.

So how is the SSA going to manage this challenge? That's what Congress wants to know and the Senate Finance Committee asked the U.S. Government  Accountability Office (GAO) to find out. The GAO is an  independent, nonpartisan agency that works for Congress. The GAO investigates how the federal government spends our taxpayer dollars and has often been called the "congressional watchdog,".

The GAO’s recent report, Social Security Administration Field Offices: Reduced Workforce Faces Challenges as Baby Boomers Retire, assesses how the SSA is managing these challenges to determine:

1. The effect that reduced staffing levels may be having on field office operations
2. The challenges that SSA faces in meeting future service delivery needs

This statement is drawn from GAO’s ongoing study on field offices for the Committee which is expected to be issued later this year. But for now, here is what the the GAO found:

Growth in claims from the nation’s baby boomers and a retirement wave of its most experienced staff may pose serious challenges for SSA if the agency does not have a clear plan. The first wave of approximately 80 million baby boomers is reaching the age of retirement eligibility, and SSA estimates that retirement and disability filings will increase the agency’s work by approximately 1 million annual claims by 2017. To further compound this challenge, SSA projects that 44 percent of its workforce will retire by 2016. Because retirements will occur among the agency’s most experienced staff, this will have a serious impact on field offices’ institutional knowledge. SSA is planning on hiring an additional 2,350 new employees this fiscal year for regional and field office operations, almost all of whom will go to the field offices. Agency officials stated, however, that it typically takes 2 to 3 years for staff to gain the experience they need to function independently. SSA is using various strategies to recruit new employees to fill knowledge gaps. SSA is finalizing its Annual Strategic Plan which will describe the agency’s strategies for addressing these issues.

Here is a link to the full report (PDF, 26 page).

Photo above by Maya Hasson via flickr.
 

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The elderly are the fastest growing part of our population. They’re more active and living longer than every before, and as a result they have legal needs and concerns that prior generations haven’t faced. And a new field of the law is evolving to address those needs and concerns.

It’s called Elder Law and it combines estate planning, wills and trusts, guardianship, elder rights, health care planning, and Social Security. And one of the elder issues on the minds of virtually every Boomer becoming eligible for Social Security is “when should I start taking Social Security benefits?”

I addressed a part of that issue recently in my post, Social Security "early bird special" taken by most married men. The decision to take early Social Security benefits would result in a reduction in a wife’s survivor benefits.

Someone who has, however, addressed the totality of the Social Security decision is Richard Kaplan, a law professor at the University of Illinois College of Law, who teaches elder law. Professor Kaplan, a prolific author on elder law issues, has just had published, A Guide to Starting Social Security Benefits, that appeared in the July-August, 2008 issue of the Journal of Retirement Planning. Here is the Abstract of his article:

When a person should begin taking Social Security retirement benefits is a critical question for planning one's retirement. This article explains the various factors at play in determining the optimum starting point, including: longevity considerations; spousal implications, whether for a previously employed or a previously unemployed spouse; the impact of post-retirement employment; the availability of health insurance prior to Medicare eligibility for the worker and the worker's spouse; alternative sources of retirement income, including distributions from retirement savings plan assets and lifetime liquidation of nonretirement assets (and the pertinent income tax ramifications); and anticipated investment strategies.

Here is a link to download Professor Kaplan's complete article from the Social Security Research Network (free but registration required).

Hat tip to Rick Bales, my fellow blogger, one of the Editors at Workplace Prof Blog.

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Lost in the ocean of billions of dollars from the recent financial scandals and disasters has been the illegal practice of banks garnishing Social Security and disability payments for third party creditors.

Social Security beneficiaries have had the above-mentioned $171.4 million taken from their account that received direct deposits, plus $6.3 million more from accounts that contained only Social Security benefits.

There was been very sparse media coverage of the findings of an investigation conducted by the Inspector General (IG) of the Social Security Administration (SSA). Those findings were published earlier this month in the CONGRESSIONAL RESPONSE REPORT: Financial Institutions Deducting Fees and Garnishments From Social Security Benefits (PDF, 45 pages).

The fee reference, by the way, was the IG's finding that in some cases banks would freeze accounts and charge penalty fees after the freezes - in excess of $1 million just between September 2006 and September 2007.

It’s just a drop in the bucket of the billions mentioned above, but not if you were one of the Social Security beneficiaries affected. And as mentioned above it's illegal.

The Social Security Act (Act) provides that

The right of any person to any future payment under this title shall not be transferable or assignable,7 at law or in equity, and none of the monies paid or payable or rights existing under this title shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.

There are five exceptions, however, which does not include the garnishments currently being done. The Act:

1. Allows the enforcement of child support and/or alimony for the support and maintenance of a child subject to, and in accordance with, State or local law.
2. Allows the Internal Revenue Service to collect unpaid Federal taxes.
3. Allows beneficiaries to elect to have a percentage of their benefits withheld and paid to the Internal Revenue Service to satisfy their Federal income tax liability for the current year.
4. Allows benefits to be withheld and paid to another Federal agency to pay a non-tax debt the beneficiary owes to that agency.
5. Authorizes the Internal Revenue Service to collect beneficiaries’ overdue Federal tax debts by levying up to 15 percent of each monthly payment until the debt is paid.

So how is the Act enforced? Not very much. The SSA interprets the Act such that its responsibility ends when it pays the beneficiary. And there are very few states that do offer protection: California and Connecticut. The Governor in New York is expected to sign a bill that is similar to the one in those two states. It would protect up to $2,500 of a depositor’s account from being frozen if benefits are being received via direct deposit.


My suggestion to fix the problem? Impose that same standard of non-alienation or assignment of benefits as is required under ERISA. Beneficiaries should be treated as beneficiaries!

Postscript:: One of the few financial writers to pick up on the IG's report was Laura Rowley who wrote in her July 16, 2008 column for Yahoo!(R) Finance that Banks Continue to Prey on Social Security Recipients. She was also way ahead of other financial reporters in her November 15, 2007 column, Unholy Alliance Fleeces Social Security Recipients. Ms. Rowley's column is called Money & Happiness, the same name as her blog and book. And finally, a hat tip to My Retirement Blog (no relation) for their post on this subject.
 
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Social Security, it seems, is always in the news. And with the Presidential election process starting to heat up, it is, of course, a major campaign issue. So if you're interested  in this issue (and you should be), how do you sort your way through all the clutter, the smoke, the mirrors, and the rhetoric? In the words of George Harrison, if you don't know where you are going, any road will take you there.

So here's a starting point. It's an exceptionally well written four-part series on Social Security written by Glen Barr that focuses on how the system actually affects retirees. Mr. Barr's articles appeared in the Crestline Courier News, a small newspaper serving Lake Arrowhead, California and surrounding communities. (In the "for-what-its-worth-department", Lake Arrowhead is also the Official Home of American Idol Camp).

Mr. Barr writes:

1. SOCIAL SECURITY: Golden Years or Fool's Gold? How and why the system got started and its long-term prospects.
2. SOCIAL SECURITY: PART TWO Politicians Clash. What government, as well as leading presidential candidates, would do to fix the problem, and how much of their Social Security checks future benefit applicants can expect to keep.
3. "Windfall' Rule Enriches Feds in Name of 'Fairness'. Possible benefit cuts for individuals also receiving state or government benefits.
4. Can Retirees Afford to Work? The cost of losing Social Security benefits by going back to work.

History Matters Mug available from the Minnesota Historical Society.

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If you happen to be near a Texas Roadhouse (and there's 300 locations in 44 states from which to choose) on any Monday to Friday from 3:00PM - 6:00PM, you can enjoy their Early Bird Special. That’s two hand-cut USDA Choice 8oz. sirloins and 4 made-from-scratch side items - all for only $16.99. Pretty good deal, and you don’t even have to be a senior citizen to take advantage of it.

Folks joke about these early bird specials at restaurants and the geriatric crowd they attract. But the Social Security "early bird special" is no joke if you happen to be one of the oldest baby boomers who are turning 62 this year. That "early bird special" is when you can start taking retirement benefits at this earliest eligibility age.

And about 50% of the Social Security eligibles are expected to claim their benefits as soon as they resulting in an estimated 25% reduction in benefits compared to waiting until full retirement age. If you're a single male, then your decision only affects you. But if you're married and have been the primary wage earner, then your decision to take early Social Security benefits can result in a reduction in your wife's survivor benefits.

It's a serious matter, and goes beyond the pop psychology of Men Are From Mars and Women Are From Venus. Recent academic research has focused on Why Do Married Men Claim Social Security Benefits So Early? Ignorance or Caddishness? I'm pleased to report on behalf of my gender that the reason was neither. Here's how the researcher phrased it: 

Regression results found no association between early claiming and caddishness or the ability of husbands to make claiming decisions independently. The one statistically significant finding is the association of college education and later claiming, which cautiously take to indicate greater financial awareness.

It's a public policy issue that needs addressing. It's not going to happen overnight. So if you're a married man eligible for Social Security (or for that matter anyone who is eligible), don't make this important decision on your own. There are qualified financial professional out there who can help.

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