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Social Security: Why Congress is messing with your benefits

Politicians describe Social Security as "the third rail," meaning that enacting any benefit cuts will kill them politically. But this is precisely what they voted to do under the Bipartisan Budget Bill of 2015.

The bill reduced the benefits of married couples and divorcees who were younger than 62 as of Jan. 2 by up to $60,000. Even $25,000 is a lot of money for most workers, given that the median household income is about $50,000.

U.S. Capitol building, Washington.
Andrew Harrer | Bloomberg | Getty Images

The new law prevents most people who reach age 66 from providing spousal benefits to their spouse or children while letting their own retirement benefit grow through age 70. The exceptions are those who filed for their retirement benefit, but suspended it sometime before April 29.

The new law also forces spouses who were not 62 before Jan. 2, 2016 to file for their retirement benefit when they file for their spousal benefit. Since Social Security won't pay two benefits at once, this means such spouses simply get the larger of the two benefits (i.e., they lose one of the two). Spouses as well as divorced spouses (who were married for 10 or more years) who reached 62 by Jan. 2 can still collect just their spousal or divorced spousal benefit between 66 and 70 and then take their own retirement benefit at 70.

The new law was passed in the dead of night and rushed to a vote with no public hearings let alone congressional debate — this despite the fact that millions of households, most of which are low-and middle-income, were having their retirement plans upended.

There are a couple other very nasty provisions in the new law, but the basic story is that Congress, at the president's urging (contained in his 2015 budget proposal) just cut many if not most Americans' Social Security benefits by thousands to tens of thousands of dollars. Even worse, the new law will push many people to take their retirement benefits earlier and at far lower levels than they had planned.

My administrative assistant is a prime example. She's supporting her disabled child and husband (who stays home to watch their son) by working two jobs. At her current age, 65, she was too young to meet the April 29 deadline to file and suspend and provide benefits to relatives while waiting until 70 to take her own largest possible benefit. Now she will be forced to take her own retirement benefit early. Otherwise, her son and husband can't collect on her record until she's 70 (were she to wait that long).

But taking her benefit before age 70 means that her household will be permanently poorer compared to the alternative. My assistant is no outlier. The new law is pushing even more people to take benefits too early. The baby boom generation is already woefully ill-prepared for retirement. The new Social Security law will undermine its retirement finances even more.

Why did the administration, with the full support of the AARP, put Social Security on the chopping block? Rich people as well as poor people were starting to learn how to get what they paid for. The administration referred to this as "aggressive claiming strategies."

"[Y]our retirement benefit if you first start collecting it at 70 is 76 percent higher, after adjusting for inflation, than if you start taking it at 62."

For those born even a second too late, which includes all of today's workers younger than 62, the new law means less money, and, in many cases, even harder Social Security decision-making.

If all this makes your stomach turn, I'm with you. It's all a sad statement about our so-called democracy, the failure of our politicians to do their jobs, the extent to which the AARP is ready to sell out, and the fact that bureaucrats have spent years complicating the system to keep people from getting what they have paid for and earned.

The good news is that most of the gains from optimizing your Social Security benefit-collection decisions haven't changed. They come from being patient enough to take Social Security's best deal. What's this deal? It entails giving up low benefits for a number of years to receive far higher benefits once you start taking them. For example, your retirement benefit if you first start collecting it at 70 is 76 percent higher, after adjusting for inflation, than if you start taking it at 62.

A high-earning couple that just turned 62 won't be grandfathered under the new law, which cost them about $60,000. But the value of their lifetime benefits if they both take their retirement benefits starting at 70 is $1.65 million, some $350,000 more than were they both to take their retirement benefits immediately. Yes, losing $60,000 is very unpleasant. But for this couple, it's only about 15 percent of the gains from maximizing lifetime benefits under the old law.



This is the starting point of a new version of our book, "Get What's Yours: The Revised Secrets to Maxing Out Your Social Security." My co-authors — Paul Solman of "PBS NewsHour" and Phil Moeller, a columnist for Money.com — and I were resting up from writing the first edition of the book when we learned, in early November, that much of what we had written was no longer on target. So we spent the next two months writing the new version.

If the government thinks it was simplifying our Social Security benefit-collection decisions, it has another thing coming. The new law has not only complicated many of our Social Security decisions enormously, it's made a mockery of fairness by permitting a one-second difference in the time of one's birth to make major difference to one's lifetime benefits.

Commentary by Laurence Kotlikoff, an economist at Boston University and co-author of "Get What's Yours – the Revised Secrets to Maxing Out Your Social Security Benefits," fully updated to reflect the new Social Security laws. Follow him on Twitter @kotlikoff.