interesting way to game social security

It's true. See

It also gives advantages to the less well off, say someone who starts SS at 62, then gets a job. Until they reach full retirement age (65-66 right now) money earned in the job over about $13,000 will reduce the benefit by $1 for each $2 earned. By withdrawing the application, they can avoid this 50% tax on their earnings.

Apparently, most of the applications are exactly that. In any case, there only

100,000 withdrawal applications per year out of 48,000,000 recipients.

-- Doug

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.

rick++ wrote: [...]

Social Security is not a pension, it is social insurance (for example, unlike private pensions, SS is "underfunded" and can only continue to operate based on collection of current and future taxes).

Is this really the most outrageous "loophole" you can find with SS? I can think of several others to get more worked up about.

-Mark Bole

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.

Take a look at:

In that example, they compare it with a Vanguard inflation adjusted life annuity. They assume our rich friend starts Social Security at age 62, earning a total of $131,664 by age 70. Since they are rich, 85% of that is taxable at

25%.

Our rich friend returns the $131,664 at age 70 and gets an $999 per month bump in SS. They also get a tax credit of $27,979 that year for the returned money, giving them a net cost of $111,914 for that $999 more a month that will go up with inflation.

To purchase a Vanguard inflation adjusted life annuity paying $999 a month costs $167,161 according to the site. That will vary with current interest rates.

So, if our rich friend was interested in the annuity anyway, he saves over $55,000 by "buying" it from the government.

-- Doug

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.

Only for the first year. Each year, the increase in benefits ($760) increases to keep pace with wages (CPI-W, not CPI-U). Also, since you're assuming the $96,000 remains untouched (generating income), we should assume that the extra benefits ($360+/month) likewise remain untouched and generate income @5%/year.

Let's see what happens over 12 years:

1st payment: $360.00 * (1 + 0.05/12) ^ 144 = $655.15 12th payment: $360.00 * (1 + 0.05/12) ^ 143 = $652.43 13th payment: $382.80 * (1 + 0.05/12) ^ 132 = $662.73

The $382.80 comes from the fact that the whole $760 is inflation adjusted, while your $400 monthly interest on $9600 isn't, so the difference grows faster than the inflation rate.

After 12 years, by not spending the extra benefit but saving it, you'll have $95,474.78. (One extra month will put you over the $96,000 target).

See above. I too started with $360/month benefit, and to be fair, invested the proceeds just as you were doing.

Yes - the inflation adjustments of the total increase, and the fact that the average life expectancy for someone aged 70 is around 11 years (i.e. this pretty much breaks even on average). Finally, you control the choice of whether to make this "investment". People in relatively healthy conditions should consider taking advantage of this, since they have a good chance of beating the odds. (Anyone can die suddenly, but we're talking conditional probabilities here.)

Mark Freeland snipped-for-privacy@sbcglobal.net

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.

Expanding on this point: Almost all of this kind of analysis, e.g. should I start at 62 or 70 or whatever, shows that it will break even on average. Which proves the folks at Social Security have some pretty good actuaries.

It has been awhile since the payments have been set, so things probably break slightly in your favor because of increased life span, but probably not more than a few months.

What this "game" lets you do is take both sides of the same bet. You can hedge against dying early by starting payments at 62. Eight years later, if you are still healthy, you can hedge against longevity.

-- Doug

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.

No offence, but none of the 5% calculations do much for me.

Real interest rate =~ nominal rate - inflation rate.

Any body looked at CD rates lately? The real inflation rate?

I wouldn't be surprised if the real interest rate were now close to 0 or even negative. Of course, that will never be reflected in the gov't numbers.

Puddin'

"Blues starts to rolling ... stops at my front do'. I'm gonna change my way of living ... won't have to worry no mo'." - from "Blues Before Sunrise", Leroy Carr, maybe 1934

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.

No offsense taken; I took Ernie's 5% to mean a nominal rate. Personally, I prefer to work in constant dollars, since it makes the calculations much cleaner. (SS is inflation-adjusted, and by working in constant dollars, we can zero out that effect). Same result, just much easier to see.

Assume 0% real interest rate on $96,000. At the end of 11 years, you still have $96,000 in constant dollars.

SS benefit increase is $760/month the first year, and since it adjusts by inflation, that's a constant dollar amount. After 11 years, one has 11 * 12

• 0 = 0,320. Actually a little less, since the SS inflation adjustment is annual, not monthly. So let's just call it even after 11 years.

Give or take a little, same result either way - whether one calculates in nominal dollars or constant dollars.

Mark Freeland snipped-for-privacy@sbcglobal.net

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.

I'm not very good at complex mathematical problems, so I'm thinking of this social security game in a simpler way. You could take your SS at age 62, bank it, hoping to re-apply at age 66, but find out that the SS department has closed this loop-hole by then. Or they've reduced benefits. Or you've invested all your SS benefits, only to lose a great deal of it in a bad recession and can't pay it back anyway. If you're looking at 5% no-risk interest rate, you need to invest in CD's, which are below 5% now with no crystal ball into the future rates. If you're planning on applying for SS at age 62 anyway, you can just wait and see (but make sure you're saving all the payments in the meantime). If you planned on taking it later, you may lose the game if any of the above happens. SandyBeth

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.

All of these are real risks.

The good news is that this is free money, since you need to repay your actual SS payments, not any earnings you may have made on them. You also get to repay with inflated dollars.

The other thing you need to do is keep careful tax records. To get the tax credit on the repayment, you need to figure your taxes with and without Social Security on every year you have received SS before the repayment year.

-- Doug

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.

I think this is the part of the "game" that I'd look forward to the most.

Elizabeth Richardson

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.

Given the publicity this "game" is receiving (half-page review of it in my local paper yesterday), I give it a very short life span.

-HW "Skip" Weldon Columbia, SC

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.

Can one do it for all 8 years, or, only a max of 3 years.

If just 3 years, then can one collect SS for ages 62, 63, 64; change their mind. Then do ages 65, 66, 67, change their mind. Then do ages 68, 69, and change their mind for a 3rd time.

yes.

-Will

william dot trice at ngc dot com

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.

One of the articles asked the SSA and they said they werent too worried becaue less than 1% of recipients currently exercise this option.

I remember another social security "game" about a decade ago where a number of poor families where coached their children to act disabled so they could collect SSDI, which is legitimate for really disabled kids. Some of the gaming bordered on abuse by parents denying their kids prescribed meds or prothesetics making their kids appear more disabled than they were. And the number of kids collecting SSDI in certain zipcodes had skyrocketed that period. I dont recall if the SSA reacted to this specific game, but SSDI has become more difficult overall to obtain.

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.

With TurboTax or equivalent, this is easy. Without them, it would be a real PIA for all but the simplest returns.

-- Doug

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.

if they claim against the other, e.g., claim against say 20K verse waiting until he gets seventy and they claiming against him.

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.

Here is one more way to play the game. According to:

?mod=retirement-preparation Quoting the relevant section:

"Let's say Ted and Alice are the same age. He's eligible for a $2,000 benefit at his full retirement age; she's eligible for $1,000 at hers. Alice claims benefits based on her earnings at age 62 and gets $750; Ted, meanwhile, is considering waiting until age 70, to try to maximize their benefits. The problem is that 70 is a long time to wait to start receiving benefits.

At full retirement age, though, Social Security gives a person two choices: You can take your own benefit, or -- if eligible -- you can collect just a spousal benefit, and then claim your own benefit at a later date. Thus, if Ted (at full retirement age) takes his spousal benefit based on Alice's earnings, Social Security would award him $500, or half of Alice's projected benefit at her full retirement age. Then, at some future date, Ted can ask Social Security for benefits based on his earnings. (At age 70, Ted would qualify for about $2,640 a month.)"

-- Doug

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.