Social Security: It's too complicated

When is the right age to start collecting Social Security?

When the election is over, Washington will quickly turn to dealing with the debt and the deficit. Well, fighting over it again, at least. Among the most heated topics will be Social Security and how to shore up its strained finances for the long haul.

Social Security is the financial foundation for most retirees. Yet married couples have 567 options for deciding when and how to file for their Social Security benefits, according to the Center for Retirement Research at Boston College. Let me repeat that: 567 options. Single people have 9.

All the twists and wrinkles mean there are plenty of potential pitfalls. Fill in the paperwork the wrong way and at the wrong time and you’ll end up with a smaller monthly income for life.

Social Security calculators are springing up all over the web to help people. But they are nothing more than a web aid. The Social Security program is just too complicated.

Of course, the program has to take into account divorce, spousal benefits, and so on. As Albert Einstein wisely remarked, "Make things as simple as possible, but not any simpler."

Still, simplification would make a real difference in the lives of America’s future retirees.

About the author

Chris Farrell is the economics editor of Marketplace Money.
Log in to post5 Comments

I'd like to see the whole thing simplified by getting rid of the program all together. It's an unsustainable ponzi scheme that treats adults as children and facilitates intergenerational theft.

Simplification. One-size-fits-all (because of life expectancy disparitiy) is basically why young black males are subsidizing old white women under the current system.

I agree with DWD: this stuff is not rocket science. While there may be 567 variations there are no where near that many important issues. Take your social security early only if you absolutely have to. Social security can be thought of [in fact should be thought of] as an annuity. The longer you wait the great your security. It is far better not to have collect much before you die than be very elderly and living on far less than you have had to had you waited. Skeptical? Try this thought experiment: which is more: your cost of living when you are dead or your cost of living when you are living and 90? Get the point? Wait unless you have no other choice.

Chris sometimes you just make a mountain out of a molehill. I notice your url to your 567 options does not take me to a list of those options. It is complex but the basics are surely an order of magnitude than claimed when you boil them all down.

Social Security is more complex because it is the only retirement program that allows you to work and accrue benefit and draw social security and later allow a larger benefit because of the contributions. When I retired from IBM, I could not defer retirement I had to take it then because it would accrue now added benefit it is fixed. Note I took a buyout and my last 5 years was a "leave of absence to retirement". A year after I left Gerstener was pink slipping employees and the severance was cut in half.

So most private pensions do not allow all the stuff SS does. The reduced benefit at age 62 and the extension of full retirement age to eventually 67 also complicate things. Basically one has to figure retirement at age 62, at full retirement age, and at age 70 where you max on benefit. Then you have to look at what you lose at early retirement and how long you have to live to recover that amount. That really confuses people and most take the attitude of getting it as soon as possible because they cannot or will not do the math. Divorcing spouses also complicate the issue that private pensions do not have to deal with - that is handled by divorce agreement. One way would be once a person was drawing SS then they could work with no additional SS withholding, but that would impact the SS trust fund since less money would be coming in and while most private plans are fixed, SS has a COLA provision.

For what it is worth my wife and I (we are the same age) are fortunate to be able to afford to wait until full retirement age for her, I take her benefit and let my benefit grow until age 70. Yes there maybe a problem if one of us dies early, but we figured the benefit out weighed the risk for us. It might not be best for someone with a smaller nest egg.

It would be interesting to see a table of benefits for these 567 options. I bet that it would filter down to maybe 25 really significant options and all the rest are very close in $ to these 25.

The only way to really simplify it would be to make it more like a private plan but that would reduce the benefit for future retirees greatly.

In my opinion, I would have preferred George Bush to have been successful in privatizing SS and having stayed out of Afghanistan and Iraq. He chose to fight the foreign war and not the battle to make SS sane.

With Generous Support From...