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Honored Social Butterfly

Social Security Misconceptions

  • Two in 3 Americans incorrectly believe that full Social Security benefits kick in at 65,
  • Many Americans have no idea that the Social Security Lump Sum Death Payment is a one-time payment of just $255.  Two in five survey respondents thought they would receive at least $500, with 1 in 6 banking on $5,000 or more.  (BTW, on this one-time death benefit - it is only one per SS number benefit so that lets out some Survivor benefit recipients).  
  • One in 3 older seniors incorrectly believe that survivor benefits kick in the month their spouse’s death occurred rather than benefits the month when the survivor files with the Social Security Administration.
  • More than 1 out of 3 older adults mistakenly believe that Social Security benefits include health insurance coverage. Medicare and Social Security are different programs with different ages of eligibility and have to be initiated separately - important not to miss the right date for Medicare - 65.

Just some tidbits -

https://currently.att.yahoo.com/finance/news/common-misconceptions-about-social-security-143445414.h... 

 

It's Always Something . . . . Roseanna Roseannadanna
Gold Conversationalist

A couple more misconceptions.

 

I guess I am old-school or something. All my life, since a youngun', I heard how "Social Security was one leg of a three-legged stool" and was not intended to be the sole source of support during retirement. The other two legs being employer pensions (now transmogrified into employer contributions to a 401K, etc) and personal savings.

 

When I read through various forums, blogs, Facebook, etc, and listen to other seniors yacking away it seems that so many of them were or are counting on only one leg of that stool, Social Security.

 

I don't know when this expectation changed.

 

I realize that saving for retirement is hard and can be very difficult for some. Unfortunately, it's not really a choice that we have.

 

see https://www.ssa.gov/history/stool.html

 

 

Another one,

 

Many people probably don't realize that Social Security provides a benefit that is a greater proportion of pre-retirement earnings for lower income workers than for higher income workers.

 

Yes, there is the cap on payroll taxes which effectively tops out the maximum possible benefit. But the percentage of income replacement is actually greater for low income than it is for high income, by design.

 

This is due to how the retirement benefit is calculated using the two "bend points", certain standardized values, and your personal SS wage history. The bend points define ranges that are a bit like our income tax marginal rates, except working in the opposite direction: a higher percentage applies to Social Security's replacement of income at lower income levels, whereas for taxes as income increases the marginal tax rate increases as well.

 

Thus someone whose wages were very low during their entire working career may find their Social Security retirement benefit is close to their accustomed income in the past, which can greatly reduce or eliminate their need for personal savings. Whereas someone higher up the income chain will find that as they pass the first bend point, and then the second bend point, the replacement of their pre-retirement income is less and less, and the need for additional income is likely increased.


see https://www.ssa.gov/oact/cola/Benefits.html

Gold Conversationalist

To give some numbers to my second example, I used the SSA's "Anypia32.exe" software to run a few examples. I used my own birthdate, full retirement age, and working years. I determined the old age benefit using two different sets of sample wage history data that the program provides. These are based on a percentage of each year's average wages for covered workers. The "High" data is 160 % of the average wages, while the "Low" data is 45 % of the average wages.

 

Note that the "low" income SS benefit is 62.6% of the AIME (take this as a proxy for their average wages over the many years of working). Or almost 2/3 of what they made previously.

 

But for the "high" income worker the SS benefit is 38.4% of their AIME. Or a bit over 1/3 of what they made previously.

 

(my first time trying to post using the Table feature. I'm not adept at it, nor a fan).

  

 "Low""High"
PIA (the SS benefit) $1051.52294.1
MFB - max family benefit1577.44016.1
special min PIA848.8848.8
special min MFB1274.61274.6
   
AIME1680.005973.00
bend point #1816816
bend point #249174917
   
Benefit (PIA) % of AIME62.6%38.4%
Honored Social Butterfly

One of the saddest things that I have seen is when a couple are both on SS retirement and are doing ok financially but who have little to no other funds to rely upon - then one of them dies and the other was under the impression that the same amount (for both) of SS retirement would continue to come in for the survivor.  Financial panic is added to grief and that is not a good mixture; grief is hard enough.  @lc3507  is right - "assumptions" is not a good plan.

It's Always Something . . . . Roseanna Roseannadanna
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Gold Conversationalist

I wholeheartedly agree with your sad illustration @GailL1. Very sad.

 

The only thing sadder, perhaps, is a story I've seen a number of times over many years: Loving hubby takes care of the finances, maybe has a pension of some type, but he takes it 100%, not the type that reserves some portion for the surviving spouse in exchange for a reduced pension benefit. Loving hubby lives the high life, spending his pension and running up debts. He dies. Leaving the widow with no shared pension. And his debts. And maybe a little bit of Social Security if she's lucky.

 

My parents had 2 or 3 such widows in their circle, and I have read of similar situations, even some anecdotes in the AARP forums. To me it's a sickening level of selfishness.

Conversationalist

@fffred Please note that if a defined benefit pension plan is covered by the Employee Retirement Income Security Act (ERISA) which was signed in 1974, the standard form of pension payment is a 50% Joint & Survivor benefit if married at retirement. The pension payment is an actuarial reduction based on the ages of the participant and spouse. If the participant predeceases their spouse, 50% of the reduced pension payment is payable to the spouse for life. Most pension plans offer additional options such as a 100% or 66.67% co- pensioner form of payment as well. In order to elect a full (unreduced) pension or co-pensioner form of payment, both the participant and spouse must revoke the 50% Joint & Survivor (ERISA mandated) in writing. ERISA has been effective for 46 plus years. With regard to government plans (most federal, state. county. municipal, police, fire, teachers, etc.) that are not subject to ERISA, such government plans provide survivor and/or co-pensioner benefits which are generally greater than the ERISA required 50% Joint & Survivor. So, for ERISA governed plans, the participant's spouse is, in reality, electing or not electing survivor benefit coverage. 

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@Tonster521 

 

So, you're saying pretty much what I said. That a selfish husband could elect to draw their full pension, company or military, perhaps conning his wife to sign the necessary document (I recall my own pension form had the option to elect 100% payment but had to be signed by both spouses). 

 

Sadly, some husbands keep their wife in the dark about all things money, and wife just trusts the husband to do what's best, "they know better".

 

Hopefully times have changed so that this is not the case going forward. I do know that I've read a few posts in the AARP forums describing such situations. And I have been aware of this through my parents' experiences with friends, and through media over the years.

 

Thank you for confirming.

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@fffred The document that you have referenced is called a Spousal Consent Waiver. It should indicate the numerical amounts of pension payable to the participant and the amounts, if any, payable to the spouse should the participant predecease the spouse. So, if the participant and/or spouse do not understand the written explanation regarding the various options, they should understand the numbers especially if a spouse agrees to forfeit his or hers interest in the Pension Plan. In other words, agree to zero ($0.00) benefits. The document must be witnessed by a designated Plan Representative or a notary public. If using a notary, the notary executes a notarized acknowledgement which means the parties are identified and the document is signed in the notary's presence. It should be noted that ERISA has been amended a number of times. In 1984, the Retirement Equity Act (REA) was enacted adding Pre Retirement Survivor Annuity coverage for spouses of participants who have accrued a vested benefit in the Plan,but have not yet retired. As I recall, there was an age requirement as well (age 35 or greater). So, if a working participant age 35 or older accrues a vested benefit (i.e., 5 to 10 years,etc.) the participant and spouse,if any, are notified of their pre retirement survivor coverage. Because there is a cost for such coverage (reduction to the participant's pension), a spousal consent waiver is required if the parties are waiving such coverage. Otherwise, the participant automatically has the pre retirement coverage. So, survivor coverage, both pre and post retirement are available in Plans governed by ERISA. Moreover, if survivor benefits are not payable, it is because the survivor (male or female) have waived their interest in the Pension Plan. I do agree with your comment regarding husbands and wives conning each other in various matters in life. However, most of those matters do not include the signatures of the parties. Full disclosure: I was a Plan Representative and conducted no less than 1000 pension interviews in my first career (about 31 years). About 2/3 of the participants were married. As I recall, for most of the long term marriages, it was clear to me that the female spouses ran the household and were very influential with the financial decision process. Many female spouses thought survivor coverage was a great concept, but the costs (15% to 20% pension reduction) were to expensive especially if she did not live long enough to recoup or exceed the amount that they reduced from the current pension. It made sense if the participant had a health issue that may reduce life expectancy. With regard to keeping a spouse in the dark, I do not have enough space here to provide examples of what people have tried to do. When I was a Pension Representative, there were about 160,000 employees and you think you seen it all. Then, out of nowhere, a case comes up that is unique. Good Luck.

Honored Social Butterfly

@fffred 

That is heartbreaking.

It's Always Something . . . . Roseanna Roseannadanna
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Regular Contributor

AARP does a lot of education but people have to want to know. Too many just assume.

 

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