The Danger of Trusting Social Security's Online Advice

Don't assume that Social Security's website is giving you all of the information you need. 

 By Larry Kotlikoff

September 24, 2013


Larry Kotlikoff: Here's a question I'm posing myself this week: Can we trust Social Security's online advice?

The answer is no. Here's an example, which purports to explain spousal benefits:

    A spouse can choose to retire as early as age 62, but doing so may result in a benefit as little as 32.5 percent of the worker's primary insurance amount. A spousal benefit is reduced 25/36 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month. This reduction factor is applied to the base spousal benefit, which is 50 percent of the worker's primary insurance amount. For example, if the worker's primary insurance amount is $1,600 and the worker's spouse chooses to begin receiving benefits 36 months before his or her normal retirement age, we first take 50 percent of $1,600 to get an $800 base spousal benefit. Then we compute the reduction factor, which is 36 times 25/36 of one percent, or 25 percent. Applying a 25 percent reduction to the $800 amount gives a spousal benefit of $600. Thus, in this case, the final spousal benefit is 37.5 percent of the primary insurance amount.

The statement is correct for a spouse with no earnings history. But for a spouse with an earnings history, this sentence is simply wrong: "This reduction factor is applied to the base spousal benefit, which is 50 percent of the worker's primary insurance amount."

The reduction factor is applied not to the base spousal benefit, but to the excess spousal benefit, which is the base spousal benefit minus the spouse's own primary insurance amount (full retirement benefit). If this difference is zero, the excess spousal benefit will be set to zero.

Continue at:

http://www.pbs.org/newshour/businessdesk/2013/09/the-danger-of-trusting-social.html