Social Security may be one of your largest assets. What and when you collect will make a huge difference to your lifetime benefits.
Today’s Social Security question is about whether taking advantage of maximizing strategies will unfairly burden the system.
Question: Isn't taking advantage of maximized claiming strategies like gaming the system? Will it cost Social Security too much?
Answer: Economist Alicia Munnell wrote the following in a MarketWatch column:
The president’s fiscal-year 2015 budget included language to “eliminate aggressive Social Security-claiming strategies, which allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits.” This is a great idea. Work that our center did more than five years ago showed that this option could cost Social Security as much as $9.5 billion annually, and that benefits go to those with the know-how to game the system.
In another column entitled “Let’s Close Down Social Security Gaming” she writes, “Today people are writing bestselling books about how to get the maximum out of Social Security.”
Alicia seems to be referring to my New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” which, as my byline indicates, I recently co-authored with NewsHour economics correspondent Paul Solman and journalist Phil Moeller. But is maxing out “gaming the system”? At the end of a broadcast story he did on Social Security for the NewsHour, Paul asked me if we were promoting “loopholes” in the Social Security rules. I replied that you could view it as a loophole but that on the other hand, couples who benefit from strategies like file-and-suspend pay a lot of taxes. And there are other loopholes in our tax system like the mortgage interest deduction, for example.
“Would it be fair for some of us to take it and others not because we didn’t know about it?” I asked. “I don’t see any reason why people shouldn’t get what is theirs, what they’re legally entitled to.”
Our fiscal system, in general, and Social Security, in particular, is an incredibly complex maze of entangled provisions, most of which were put into place in piecemeal fashion over the years. Saying that provision X is unfair because it benefits double-income earners and should be eliminated begs the question of whether all the other provisions in our fiscal laws that disadvantage them are also unfair. Our system is replete with positive taxes and negative taxes, which we call benefits. If you want to make the case that the system is unfair, you need to look at all the net taxes people in different situations are paying.
We have roughly 25 major fiscal systems at the federal and state levels (Food Stamps, Medicaid, Medicare, the Earned Income Tax Credit, the Child Tax Credit, the Alternative Minimum Tax, Supplemental Security Income, Transitional Aid to Families with Dependent Children, Obamacare, the New High Income Medicare taxes, the progressive Part B Medicare premium, the FICA payroll tax, progessive federal tax brackets, state income taxes, state and local sales taxes, federal and state estate and gift taxes, 12 different Social Security benefits, federal and state corporate income taxes, and the list goes on) that impact what we pay on net to government.
I’m in the process of doing research with Alan Auerbach, an economist at Berkeley, to put all of these programs together to understand the system’s true progressivity — how net tax rates differ across households of higher and lower means. I’ll be writing about our findings in this space in a few weeks, but for now let me assuage my dear friend Alicia with these words. “Telling people how to get what’s theirs” doesn’t game the system. Nor does taking all the benefits to which you were legally entitled, including the “free” spousal benefit using the file and suspend strategy (which you did), game the system. It’s not our jobs as individual citizens to make the system more equitable by paying more taxes or taking fewer benefits unless we can persuade everyone else in our shoes to do the same think, which we most certainly cannot. It’s our government’s job to do something that it’s yet to do — understand who is paying what on net with all fiscal programs put on the table. If this overall picture looks unfair, then it’s our government’s job to fix it.
And it’s the job of academics, like me and countless others, including my dear friend Alicia Munnell, to consider the overall picture before proposing major changes. Finally, even ignoring all the other fiscal policies, Alicia’s proposed “simple fix” of eliminating filing and suspending, and imposing deeming after full retirement age, would produce as many grievous inequalities as it fixes, including some that are effectively extremely sexist.
My weekly Social Security column appears on PBS NEWSHOUR’s website.
