MONEY Social Security

Why Kids Can Be Social Security Game Changers

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David Jakle—Getty Images

If you're still raising children, the usual strategies for social security may not apply.

Did you wait until later in life to have kids? Then you might want to ignore conventional wisdom and take Social Security on the early side.

You may already know that children can collect Social Security based on the earnings of a parent who is disabled or dead. But it’s also true that once you claim retirement benefits, your unmarried children are due money until their 18th birthday—even if both parents are alive and in good health. (If your children are still in high school, they can collect until they finish up or turn 19, whichever comes first; other rules apply to kids who are disabled.) The money is for your kids, but you are free to control minor children’s spending.

This extra payment for kids adds a wrinkle to claiming Social Security benefits. As a rule you get a better financial deal by delaying, since between the ages of 62 and 70 your benefits increase 7% to 8% for each year you wait. But if you claim early and collect your kids’ benefit along with your own, you can have more money in the earlier years of retirement and possibly reap more in total over your lifetime.

The Money Adds Up

Here’s how the benefits work: When you file for retirement, each of your kids can get money equaling half of what you would be entitled to receive at full retirement age, currently 66. Even if you took a smaller benefit by claiming early, your child would get half of that larger, full-retirement-age amount.

Say you’re a 62-year-old parent of a 14-year-old. You could wait four years to collect $2,000 a month at full retirement age. Or you could immediately receive $1,500 while your child gets $1,000 a month until reaching the age cutoff—$2,500 monthly for the next four years, then back down to $1,500.

More Now, Less Later

Since this is Social Security, count on complications. One is a limit on how much your family can get based on one worker’s earnings. It’s usually 150% to 180% of what you are due at full retirement age—$3,000 in this case—however many kids you have. In a two-income family, parents’ combined records can enable a larger maximum.

Another twist: If you earn wages after filing at 62, Social Security’s earnings test may reduce your family’s benefits until you’re 66.

Your lifetime benefits can suffer too. In the above example, starting in your mid-eighties the total money you’d get after claiming early would be less than what you would have collected starting at full retirement age. If you can afford to, you can avoid that by suspending your own benefits at age 66 and restarting them at 70. The math is complicated, so work it out with a financial planner or use a calculator like MaximizeMySocialSecurity.com ($40), run by my co-author Laurence Kotlikoff.

Read next: How to Choose the Social Security Claiming Age That’s Right for You

Philip Moeller, co-author of Get What’s Yours: The Secrets to Maxing Out Your Social Security, is now working on a companion book about Medicare.

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MONEY Savings

When $1.5 Million Isn’t Enough for Retirement

Q: I am 76 and have been retired for more than 10 years. I have $1.5 million. Is that enough to last till I am 100? How do I make sure I am on track? – William Ricketts

A: It may be surprising that someone who still has $1.5 million a decade into retirement would need to ask if it’s enough. But it’s a legitimate worry. “Whether $1.5 million is enough depends on your lifestyle and spending,” says Theodore Saade, a senior partner at Signature Estate & Investment Advisors in Los Angeles.

Let’s put that $1.5 million in perspective. Using a traditional 4% annual withdrawal rate (increased each year for inflation), a 66-year-old retiring with that amount could safely start out with an income of $60,000 a year, assuming a 30-year time horizon. If you have $1.5 million at age 76, you can withdraw a bit more—perhaps 6% or 7% year—without risking a major decline in your living standards if markets dip. That works out to an income of $90,000 to $105,000.

You may not even need to withdraw that much, since you most likely have Social Security income too. A typical single person earning $75,000 a year who claims at full retirement age might receive a payout of $24,000 a year. For a couple, Social Security could easily provide a combined $30,000 to $40,000 a year. All of which suggests you can probably maintain a six-figure income with little risk of running short in retirement.

Whether that income is really enough, however, depends on your spending needs and your financial goals, which might include helping one or more grandkids pay for college or leaving money to heirs. To see if you’re on track, plug in your expenses into a planning calculator, such as Fidelity’s Retirement Income Planner; and to see how long your money will last, try our retirement calculator here.

These projections assume you are keeping your assets invested in a mix of bonds and stocks. Even at 76, you’re still investing for two or more decades, so you need to keep some money in stocks for growth. “It’s not uncommon to live into your 90s and even to 100, and the number of people who do is growing,” says Saade. If you stash that $1.5 million only in low-yielding but stable investments, such as Treasury bonds and money market funds, you may feel more secure. But over those decades, inflation can severely erode your nest egg.

Looking beyond your portfolio, there’s an even bigger risk to consider: incurring medical bills and, especially, long-term care costs. While more people are living longer and healthier lives, the older you get, the more likely it is that you will have some health issues. About 70% of people turning 65 today will eventually need at least some kind of long-term care, which isn’t generally covered by Medicare.

So it makes sense to plan ahead by checking out costs for long-term care in your area. These prices vary widely by region, but the average stay in an assisted living facility can run $42,000 year, while nursing home care may cost $77,000 or more. Granted, not everyone will need years of expensive care—the average nursing home stay is less than a year. Even so, it’s better to understand your costs and options, says Saade. Odds are, with the right planning, $1.5 million will be enough to meet most of your goals.

Read next: What You Can Expect from Medicare on Its 50th Anniversary

MONEY Social Security

What Happens If the Social Security Trust Fund Runs Out in 2034?

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One things for sure: Benefits won't disappear entirely

The trustees of the Social Security system’s finances released their annual report on Wednesday afternoon. They say the combined trust funds that help pay old age and disability benefits are likely to run out by 2034, the year when today’s 48-year-olds reach full retirement age. The trustee’s estimate reflects the latest economic and demographic projections, and it changes a bit most years. Last year’s estimate for trust fund depletion was 2033.

But what does it mean to say the Social Security trust fund has run out?

Let’s be clear: Social Security benefits won’t disappear entirely when that happens. If nothing else changes, the payroll taxes still being paid by younger people in the workforce will be enough to fund about 79% of scheduled benefits, says the report.

That’s because Social Security is by and large a pay-as-you-go system. At the individual level is looks a bit like a savings account, where you contribute money now in order to draw it down after you stop working. But in fact, it’s never been primarily run on saved money. Taxes from today’s workers are used to fund the benefits of today’s retirees.

But after the system was overhauled in 1983 and up until 2010, the amount of payroll tax dollars flowing into the system was higher than the amount of money that was needed to fund benefits. That extra money is in the so-called trust fund, and it’s invested in special, untraded Treasury bonds. Thanks to interest from the Treasuries and taxes on higher-earning beneficiaries, the Social Security system still takes in a bit more money than it pays out each year.

But soon that will flip over and Social Security will have to start eating into its past surplus to pay beneficiaries—and 2034 is the year that the surplus is currently expected to run out.

When that happens, unless Congress intervenes, the Social Security administration will be able to pay only the benefits supported by current Social Security taxes.

The trustees warned that a similar moment of reckoning could be coming much sooner for those who get Social Security disability payments. The trust fund that specifically supports disability insurance is scheduled to run out next year. In the past, Congress has addressed such problems by moving money from the much bigger retirement system into disability, but many Republicans in Congress are saying they want changes to disability-insurance rules before they’ll do this.

Returning to the system as whole, obviously a sudden drop to 79% of benefits is no trivial thing. It would be a brutal cut for many retired people who rely on Social Security. The point is that addressing a funding shortfall isn’t as challenging as stopping the system from going all the way to paying zero. All told, the gap between what Social Security promises to pay and what it will collect amounts to about 1.2% of GDP in 2035. That’s serious money, but also a fixable problem (except for the politics). For context, over the next decade, annual spending on everything besides Social Security and health care programs is projected to shrink by 1.7%, according to the Congressional Budget Office.

Proposals to keep Social Security on track for the longer term range from promising to pay less—by further raising the retirement age, or adjusting benefit formulas—to raising taxes on higher earners or wealthier beneficiaries.

Think of 2034 as the rough political deadline for Congress to work that out, although the sooner it does so, the more gradual changes can be for either beneficiaries or taxpayers.

MONEY privacy

Your Facebook Photos Are Fair Game for Prosecutors

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Bloomberg—Bloomberg via Getty Images

A state appeals court ruling this week has big privacy implications.

A New York state court ruled Tuesday that Facebook must comply with search warrants allowing government prosecutors to sift through users’ photos, messages and personal account information as part of an investigation of Social Security fraud.

The appeals court ruling said that the social network cannot challenge search warrants for 381 users’ Facebook data, although individual defendants can move to suppress the evidence. New York law enforcement agents have used Facebook photos showing public employees riding jet skis, playing golf and performing martial arts to prove that the defendants were lying about physical disabilities, Reuters reports.

“In many cases, evidence on their Facebook accounts directly contradicted the lies the defendants told to the Social Security Administration,” a spokeswoman for the district attorney’s office told Reuters.

So far, 108 people have pleaded guilty to felony charges, and they must pay back about $25 million, according to Bloomberg.

A Facebook spokesman told Reuters that the company—which has argued that the search warrants give prosecutors too much access to private information—is considering an appeal.

MONEY Social Security

How Reading Your Social Security Statement Can Make You Richer

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Getty Images

Making smart use of the information in your benefits statement can save your retirement.

The Social Security Administration is learning what financial educators have known for decades: good information is helpful but does not always lead to useful action. Now, in a bid to help individuals make smarter decisions about their benefits and retirement income overall, a push is on to broaden the regular Social Security statements that all taxpayers receive.

Social Security is the nation’s most important source of retirement security, providing half the monthly income of half of all retirees. Yet the system is so complicated that many puzzle over when to take monthly benefits, which may vary widely depending on the age at which you begin. You can start at age 62. But your check is about 8% higher for each year you delay until age 70.

As traditional pensions disappear, Social Security is the only source of guaranteed lifetime income that many future retirees will have. Making the most of it is critical—and it may be as simple as just reading your statement, now available online, in order to understand your options. (To find yours, go to ssa.gov/myaccount.)

The government began mailing a regular benefits statement in 1995, but stopped in 2011 as a cost-cutting measure and tried to direct people to the Social Security website instead. Last fall, however, the agency began mailing out paper statements again to recipients every few years.

This statement shows your expected monthly Social Security benefit at various retirement dates. Studies show that 40% of taxpayers use these calculations in their planning, according to a new study from the Center for Retirement Research at Boston College. But individuals do not use this information as a prod to change the date that they intend to start taking benefits, the CRR’s researchers found.

This is a familiar disconnect that lurks in money behavior at many levels. Proponents of financial education have had a difficult time proving that kids or adults who are taught about things like budgets and retirement saving put this knowledge to good use and make smarter money decisions because of the knowledge they have gained. They understand. They can pass a test. But does this knowledge change behavior for the better? Some encouraging signs are surfacing. But the lasting impact of financial education remains an open question.

Looking at a set of studies centered on awareness of the regular Social Security statements, researchers at CRR found that more Americans have been delaying benefits since the statements began arriving in mailboxes 20 years ago. But they attribute this entirely to outside forces, including a higher rate of college graduates, greater longevity and longer careers. “The information contained in the statement is not sufficient to improve their retirement behavior,” the authors note.

The upshot: a more “comprehensive” Social Security statement would lead more taxpayers to better optimize their benefit, CRR asserts. That might mean including instruction on how to place Social Security benefits in context with other assets and income sources, and how to determine the amount of monthly income you are likely to need.

Meanwhile, to make sure you are making the right claiming decision, gather the information in your statements and plug those numbers into one or more Social Security calculators; you can find several listed here. As a study last year by Financial Engines found, many individuals are leaving $100,000 or more in income on the table—as much as $250,000 for married couples—by choosing the wrong claiming strategy. That money could make your retirement a whole lot more comfortable.

Read next: This Is the Maximum Benefit You Can Get from Social Security

MONEY Social Security

Here’s What You Can Really Expect from Social Security

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The projected Social Security shortfall is likely to hit younger workers hardest.

Social Security turns 80 next month and, as always, one of big unknowns for this octogenarian program is how much longer it will be around—at least in its present form.

Social Security has two trust funds: the Old-Age and Survivors (OAS) fund, and its smaller sibling, the Disability Insurance ( DI) fund. Most people lump the funds together as the OASDI retirement program. But they operate separately. Out of the 6.2% payroll tax that workers and their employers each must pay into Social Security, 5.3% goes into the OAS fund and 0.9% to the DI fund.

The bigger OAS fund is what most people focus on when they worry about Social Security’s long-term sustainability. Every year program trustees issue an report that includes the latest projections about how long the fund will last.

Money Running Out

Last year’s report said the combined reserves of both funds would be exhausted in the year 2033, at which time it could pay only 77¢ on the dollar of its benefit obligations. The DI fund, however, faces a more immediate crisis. It will run out of money in 2016—as in next year—and its 0.9% payroll tax levy will then collect only enough to pay 81% of its benefit obligations.

The DI fund has faced shortfalls before, and Congress has papered over the problem by transferring money into it from the larger OAS fund. When the Republicans assumed control of both houses of Congress this year, however, they rejected this short-term fix and said they would be seeking a longer-term solution before DI funds ran out. Expecting anything more before next year’s elections than a last-minute bailout from the OAS fund is a long shot.

Regardless of the DI fund situation, the biggest concern for future retirees remains the OAS fund. On paper, there are loads of reasonable ways to return the fund to long-term sustainability. But there is no sign yet that Congress is any more willing to tackle this issue than it has been during the many years since it became a well-known problem. If anything, Democrats have seized on rising income inequality to mount a campaign that Social Security benefits should be increased, not reduced.

Future Benefit Cuts

All of which raises the big question: What should current workers and near-retirees expect from Social Security now?

For anyone 55 or older, relax—it’s highly unlikely that your Social Security benefits will change substantially. Even the reform proposals with the steepest benefit cuts tend to leave this age group alone.

Younger generations, however, have more reason to be concerned. Opinion polls regularly find that many younger workers think Social Security will not be there for them when they retire.

While I think Social Security certainly will be around for another 80 years, I do think it makes sense for people younger than 50 to build a contingency in their retirement plans that would allow for, say, a 10% haircut in benefits for those ages 45 to 55, and a 20% trim for those who are younger.

Personally, I do not think these cuts will occur. But even under existing Social Security rules, Social Security’s so-called replacement rate—benefits as a percentage of pre-retirement incomes—has been slowly declining and is projected to continue doing so.

Lifting the Wage Ceiling

Younger high-income earners, in particular, should plan for smaller Social Security benefits. That’s because one of the most likely ways to improve system finances, as well as one of the most politically popular, is to substantially increase the level of annual wage income on which payroll taxes are levied. It stands at $118,500 this year but could easily be doubled and then some under many proposals. And some progressive reformers would remove the wage ceiling entirely, exposing all wage income to Social Security taxes.

However, more drastic benefit reductions are unlikely. Why?

More than half of couples aged 65 and older depend on Social Security for more than half of their total household income. For single beneficiaries, nearly 75% are reliant on Social Security for most of their income.

These figures will be cited with increasingly frequency as the 2016 Presidential campaign picks up steam. So will the reality these older Americans tend to show up to vote at a higher-than-average rate. There is a reason Social Security is called the “third rail” of American politics—and it hasn’t lost that juice at all.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: This Is the Maximum Benefit You Can Get from Social Security

MONEY Opinion

4 Agenda Items Missing From Monday’s White House Conference on Aging

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The agenda for the July 13th conference overlooks some of the most pressing issues facing seniors today.

When presidents call Americans together to talk about aging, major change is possible. The first White House Conference on Aging in 1961 played a midwife’s role in the birth of Medicare; the 1971 conference led to creation of the automatic cost-of-living adjustment for Social Security, which has been in place since 1975.

This year’s conference, set for Monday, July 13, could have similar impact in a country facing the challenges of a rapidly aging population.

Unfortunately, I’m not optimistic that this year’s summit will be as productive as past ones have been. While I’d love to be proven wrong, the agenda overlooks too many important issues: rapid diversification of our older population, retirement inequality and assigning a bigger role to Social Security, and finding a way to protect pensions and Medicare.

Also, a failure by Congress to fund the event forced a sharp downsizing, limiting the number of voices that will be heard.

All in all, it’s shaping up as a missed opportunity at a time when aging in America is a growing challenge. In 2050, the 65-and-older population will be 83.7 million, almost double what it was in 2012, according to the U.S. Census Bureau.

Four broad topics will be considered: retirement security, healthy aging, preventing elder financial exploitation and abuse, and long-term services and supports. All are important, but much of the agenda reads like a rehash of ideas the Obama administration has been promoting for years, especially in the area of retirement security.

“The White House can always get a bunch of people together to talk about its own initiatives, but that isn’t the idea behind the conference on aging,” said Paul Kleyman, a longtime observer of trends in aging who was a delegate to the 1995 aging conference hosted by President Bill Clinton. “They’re using a talking points format to say ‘Here’s what we think and want to do,’ without really taking in and assessing what an aging nation is saying needs to be done.”

On the plus side, the agenda highlights the need to eliminate conflicted financial advice, and includes questions about how to better promote healthy aging.

Also up for discussion is how to help people age in place. A recent report from the National Association of Area Agencies on Aging (n4a) found that the biggest challenges seniors face concern inadequate transportation, living independently and finding affordable housing.

“The most frequent calls for help that we hear concern aging at home and staying in the community,” said Sandy Markwood, n4a’s chief executive officer. “That is the goal of most individuals. Rarely do we hear anyone saying, ‘I just can’t wait to go into an institutional setting.’ ”

But so much is missing. For starters, the rising importance of ethnic, non-white and LGBT elders. Kleyman, who directs coverage of ethnic elders at New America Media, noted that the percentage of ethnic and non-white elderly in the 65-plus population will double by 2050, to 42 percent. LGBT seniors, while smaller in total numbers, face discrimination in housing and healthcare.

Longevity Inequality

Another omitted topic: the pressing moral issue of inequality in longevity. White men with 16 or more years of schooling live an average of 14 years longer than black men with fewer than 12 years of education, according to the Centers for Disease Control.

Racial and gender and racial disparities also are evident in wealth and retirement income, another issue that gets short shrift. Instead, we get a rehash of ideas the Obama Administration has been hawking for years now: auto-IRAs at the federal and state levels, better access to workplace saving plan enrollment and simplified requirement minimum distribution rules.

The discussion of Social Security looks like it will be especially disappointing. The policy brief embraces generalities about “strengthening Social Security” without mentioning the boldest, smartest idea being advanced by the left flank of the President’s own party: expansion of benefits focused on low- and middle-class households. Finding ways to protect traditional pensions? Preserving Medicare as a defined benefit, and defending it against voucherization? Those are nowhere to be found.

The conference should be talking about the upside of aging, along with ways to encourage trends such as encore careers by fighting age discrimination in hiring, getting more employers to support phased retirement and re-thinking how higher education can serve older adults.

Plenty of advocates would like to raise these issues, but most won’t be present due to the funding constraints. Actual delegates will be replaced by an audience of hand-picked dignitaries; everyone else will be relegated to watch parties and submitting questions via social media.

So, let’s get the party started: @whitehouse. Take a wider, more inclusive view of aging in America.

TIME Greece

Here’s What Greek Austerity Would Look Like in America

Putting Greece's economic catastrophe into perspective

Greece is in the middle of a fresh round of economic tumult as its leaders try to negotiate terms for a new bailout package to keep the country financially afloat. Since 2010, Greece has been receiving money from the European Union and the International Monetary Fund in exchange for agreeing to harsh spending cuts and tax increases. The steep cost-cutting measures, known as austerity, have become a common practice across Europe as the continent has struggled to regain its economic footing following the global financial crisis of 2008.

But Greece’s case has been especially extreme. With steep slashes to health funding, salaries and pensions along with huge tax increases, Greek unemployment has skyrocketed, as have the number of people in poverty. As of Tuesday night, Greece had defaulted on a $1.7 billion payment to the International Monetary Fund, and the financial future of the country is looking increasingly dire. Greece will have to agree to even more spending cuts to continue to receive funding.

To place the severity of Greece’s austerity measures over the last several years in perspective, here’s an idea for how the same types of cuts would impact the United States.

  • Greece’s minimum monthly wage was cut by 22% in 2012, from 751 euros to 586 euros. A similar cut in the U.S. would drop the hourly minimum wage from $7.25 to $5.66.
  • In 2009 and 2010 Greece implemented a variety of cuts to salaries for public sector workers that worked out to an average pay cut of about 15%. In the U.S. that would decrease the average government employee’s pay from $51,340 per year to $43,639, using 2012 figures.
  • Pension cuts have been an especially controversial pain point in Greece, and the combined cuts have lead to a 40% decrease in pension funding since 2009, according to the Associated Press. A similar drop in Social Security payouts in the U.S. would mean the average senior citizen’s monthly would mean a drop in Social Security payouts from $1,294 per month on average to $776 per month.
  • Greece’s national health budget has been slashed by about 40% since 2008, according to the New York Times. Using U.S. health spending figures from 2013, that would drop federal, state and local government spending on health care from $1.25 trillion ($3,980 per person) to $725 billion ($2,388 per person).
  • In 2010 Greece increased the tax on cigarettes by about 20 percent. That would increase the tax on a pack of cigarettes in New York from $6.86 to $7.89.
MONEY retirement income

3 Retirement Loopholes That Are Likely to Close

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Design Pics/Darren Greenwood—Getty Images

The government has a knack for catching on to the most popular loopholes.

There are plenty of tips and tricks to maximizing your retirement benefits, and more than a few are considered “loopholes” that taxpayers have been able to use to circumvent the letter of the law in order to pay less to the government.

But as often happens when too many people make use of such shortcuts, the government may move to close three retirement loopholes that have become increasingly popular as financial advisers have learned how to exploit kinks in the law.

1. Back-door Roth IRA conversions
The U.S. Congress created this particular loophole by lifting income restrictions from conversions from a traditional Individual Retirement Account (IRA) to a Roth IRA, but not listing these restrictions from the contributions to the accounts.

People whose incomes are too high to put after-tax money directly into a Roth, where the growth is tax-free, can instead fund a traditional IRA with a nondeductible contribution and shortly thereafter convert the IRA to a Roth.

Taxes are typically due in a Roth conversion, but this technique will not trigger much, if any, tax bill if the contributor does not have other money in an IRA.
President Obama’s 2016 budget proposal suggests that future Roth conversions be limited to pre-tax money only, effectively killing most back-door Roths.

Congressional gridlock, though, means action is not likely until the next administration takes over, said financial planner and enrolled agent Francis St. Onge with Total Financial Planning in Brighton, Michigan. He doubts any tax change would be retroactive, which means the window for doing back-door Roths is likely to remain open for awhile.

“It would create too much turmoil if they forced people to undo them,” says St. Onge.

2. The stretch IRA
People who inherit an IRA have the option of taking distributions over their lifetimes. Wealthy families that convert IRAs to Roths can potentially provide tax-free income to their heirs for decades, since Roth withdrawals are typically
not taxed.

That bothers lawmakers across the political spectrum who think retirement funds should be for retirement – not a bonanza for inheritors.

“Congress never imagined the IRA to be an estate-planning vehicle,” said Ed Slott, a certified public accountant and author of “Ed Slott’s 2015 Retirement Decisions Guide.”

Most recent tax-related bills have included a provision to kill the stretch IRA and replace it with a law requiring beneficiaries other than spouses to withdraw the money within five years.

Anyone contemplating a Roth conversion for the benefit of heirs should evaluate whether the strategy makes sense if those heirs have to withdraw the money within five years, Slott said.

3. “Aggressive” strategies for Social Security
Obama’s budget also proposed to eliminate “aggressive” Social Security claiming strategies, which it said allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits.

Obama did not specify which strategies, but retirement experts said he is likely referring to the “file and suspend” and “claim now, claim more later” techniques.

Married people can claim a benefit based on their own work record or a spousal benefit of up to half their partner’s benefit. Dual-earner couples may profit by doing both.

People who choose a spousal benefit at full retirement age (currently 66) can later switch to their own benefit when it maxes out at age 70 – known as the “claim now, claim more later” approach that can boost a couple’s lifetime Social Security payout by tens of thousands of dollars.

The “file and suspend” technique can be used in conjunction with this strategy or on its own. Typically one member of a couple has to file for retirement benefits for the other partner to get a spousal benefit.

Someone who reaches full retirement age also has the option of applying for Social Security and then immediately suspending the application so that the benefit continues to grow, while allowing a spouse to claim a spousal benefit.

People close to retirement need not worry, said Boston University economist Laurence Kotlikoff, who wrote the bestseller “Get What’s Yours: The Secrets to Maxing Out Social Security.”

“I don’t see them ever taking anything away that they’ve already given,” Kotlikoff said. “If they do something, they’ll have to phase it in.”

MONEY

You’ll Never Guess the Latest Victims of the Student Loan Crisis

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Renold Zergat—Getty Images

A fast-growing number of seniors are hitting retirement with a student debt burden. Even their Social Security is at risk.

Most debt you can get out of—painful as it might be. Credit card debt can be cleared in bankruptcy. A mortgage can end in foreclosure. But student debt is more sticky, and it turns out it can have big consequences in retirement.

Last year, Richard Minuti’s Social Security payments were cut by 10%.

The Philadelphia native was already earning only a bit over $10,000 a year, including some part-time work as a tutor. “I was desperate,” says Minuti. “Taking 10% of a person’s pay who’s trying to live with bills, that’s the cruelty of it.”

The Treasury Department was taking the money to pay for federal student loans he had taken out years before. Just before age 50, Minuti had gone back to college to get a second bachelor’s degree and a better job in social work and counseling. But the non-profit jobs he landed afterwards were lower paying, and he defaulted on the debt.

Student debt’s painful new twist

Minuti is one of the small but expanding group of seniors who are hitting retirement with a student debt burden. Over the past decade, people over the age of 60 had the fastest growing educational loan balances of any age group, according to the Federal Reserve Bank of New York. The total amount grew by more than nine times, from $6 billion in 2004 to $58 billion in 2014.

SeniorEduLoanGrowth

Only about 4% of households headed by people age 65 to 74 carry educational debt, according to a 2014 U.S. Government Accountability Office report. But as recently as 2004, student loans balances in retirement were close to unheard of, affecting less than 1% of this group.

Educational loans are very difficult to pay off when you are in or near retirement. Unlike a new college grad, there’s little prospect of years of rising salary income to help pay off the loan. That’s one reason older debtors have the highest default rate of any age group. (Also, most people who can’t pay off a loan will eventually age into being included among older debtors.) Over half of federal loans held by people over age 75 are in default, according to the GAO.

Student loan debts can’t be discharged in bankruptcy. And, as Minuti learned, federal tax refunds and up to 15% of wages and Social Security can be garnished.

This can be devastating, says Joanna Darcus, consumer rights attorney at Community Legal Services of Philadelphia.

“Most clients find me because the collection activity that they’re facing is preventing them from paying their utilities, from buying food for themselves, from paying their rent or their mortgage,” says Darcus, who works with low-income borrowers.

The number of seniors whose Social Security checks were garnished rose by roughly six times over the past decade, from about 6,000 to 36,000 people, says the GAO. Legislation from the mid-1990s ensured recipients could still get a minimum of $750 a month. At the time, this was enough to keep them from sliding below the poverty threshold. But to meet the current threshold, Congress would need to increase this to above $1,000 a month.

In other words, with enough debt, a Social Security recipient can be pulled into poverty.

“That’s pretty stressful for seniors when they understand that,” says Jan Miller, a student loan consultant who has seen a rise in his senior clients.

What’s behind the rise?

It’s not, despite what you might guess, only about parents who are taking on loans for their kids late in their careers.

Listen: How to decide if you should take out loans for your children’s education

In the GAO data, about 18% of federal educational debt held by seniors was from Parent PLUS loans for children or grandchildren. The remaining 82% was taken out by the borrower for his or her own education. (The GAO data differs from the New York Fed’s, showing lower total balances, so it may be missing some parental borrowing.)

SeniorLoansforOwnEdu

Darcus says many of her clients turned to education as a solution to unemployment and long-stagnant wages. Enrollment for all full and part-time students over age 35 increased 20% from 2004 to its recessionary peak in 2010, according to the National Center for Education Statistics.

“Among many of my clients, education is viewed as a pathway out of poverty and toward financial stability, but their reality is much different from that,” Darcus says. “Sometimes it’s their debt that keeps them in poverty, or pushes them deeper into it.”

And in recent years, both tuition and older debts have been especially difficult to pay, as home values and household assets took a hit in the Great Recession. Meanwhile, of course, the cost of higher education has soared. Tuition for private nonprofit institutions is up 78% in real dollars since 2004, according to the College Board.

What may be changing

New regulations and legislation this year may bring some relief to educational loan borrowers. The Senate in March introduced legislation to make private loans, but not federally subsidized loans, dismissible through bankruptcy.

For federal loans, more favorable income-driven repayment plans may be extended to up to 5 million borrowers this year. These plans, which have been growing in popularity since launching in 2009, adjust monthly payments according to reported discretionary income. The Department of Education is scheduled to issue new regulations by the end of 2015 that may allow all student borrowers to cap payments at 10% of their monthly income.

But it is unclear what percentage of that 5 million people are older borrowers who would benefit. Some borrowers have also complained that income-driven repayment plans require too much complex paperwork to enroll and stay enrolled. Borrowers who want to find out if they are already eligible for income-driven repayment plans can go here.

Parent PLUS loans would not be included in the new regulations. However, Parent PLUS loans can still be consolidated in order to take advantage of a similar, albeit less generous option, called the Income Contingent Repayment plan. This plan allows borrowers to cap their monthly payments at 20% of their discretionary income.

Still, some feel the best way to help seniors with student loan debt is to stop threatening to garnish Social Security benefits altogether. This spring, the Senate Aging Committee called for further investigations of the effects of student debt on seniors.

“Garnishing Social Security benefits defeats the entire point of the program—that’s why we don’t allow banks or credit card companies to do it,” said Sen. Claire McCaskill of Missouri in a statement.

Getting out from under

Richard Minuti was able to enroll in an income-based repayment plan last year with the help of a legal advocacy group. Because Minuti earned less than 150% of the federal poverty level, the government set his monthly obligation at $0, eliminating his monthly payment.

“I’m appreciative of that, thank God they have something like that,” Minuti says, “because obviously there are many people like myself who are similarly situated, 60-plus, and having these problems.”

But Deanne Loonin, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project, says she doesn’t see the trend of rising educational debts ending any time soon. And some seniors will struggle with this debt well into retirement.

“I’ve got clients in nursing homes who are still having their Social Security garnished and they were in their 90s,” she says.

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