What’s wrong with Social Security?

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Q. It is my belief that non-working spouses receive their own Social Security — if they have in fact worked at all during their lifetime and qualify for their own benefits — plus up to half of their spouses’ monthly amount without compromising the higher earner’s benefit. Is that correct? It seems multiple wives of one husband collect Social Security provided they were married at least 10 years. What’s wrong with this picture?
— Not happy

A. There is plenty wrong with this picture.

Let’s start by going over the rules as they stand.

If you have worked at all during your lifetime and qualify for your own Social Security benefit, you will receive either your own benefit based on your earnings or half of your spouse’s benefit — whichever is greater, said Matthew DeFelice, a certified financial planner with U.S. Financial Services in Fairfield.

You don’t get both.

For example, he said, if your spouse is entitled to a monthly benefit of $2,000 at their full retirement age, and your work record only entitles you to $500 per month, an additional $500 will be added to your benefit to make it equal half of your spouse’s amount, he said.

Essentially, spousal benefits are designed to provide retirement income to spouses who either didn’t work, or earned significantly less than their spouses over their working lifetime, DeFelice said.

“Stay-at-home parents are probably the most common example of spousal benefit recipients, as many people who stayed home to raise children for years don’t have as much in earnings over their lifetimes, and therefore wouldn’t be entitled to much of a Social Security benefit based on their own work record,” he said.

Additionally, to qualify for spouseal benefits you must also meet other criteria.

You must be at least 62 years of age; or any age and caring for a child entitled to receive benefits on your spouse’s record who is younger than age 16 or disabled.

Your spouse must be collecting his or her own Social Security retirement benefit.

You must file for your own retirement benefit and your spousal benefit simultaneously. You can’t choose one and delay the other, as you previously could.

If you are divorced, your ex-spouse can receive benefits based on your record (even if you have remarried) if:

• Your marriage lasted 10 years or longer;
• Your ex-spouse is unmarried;
• Your ex-spouse is age 62 or older;
• The benefit that your ex-spouse is entitled to receive based on their own work record is less than the benefit they would receive based on your work record; and
• You are entitled to Social Security retirement or disability benefits.

“If one spouse has multiple ex-wives that meet all of that criteria, then yes, they could each collect off of a single earner,” DeFelice said. “And collecting a spousal benefit does not reduce or change the amount you, your current spouse, ex-spouse, or ex-spouse’s current spouse may receive.”

DeFelice said the Social Security Administration (SSA) adjusts or “indexes” your actual earnings to account for changes in average wages since the year the earnings were received. Then Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most.

“The SSA applies a formula to these earnings and arrives at your basic benefit, or `primary insurance amount,’” he said. “This is how much you would receive at your full retirement age — 65 or older, depending on your date of birth.”

There is a cap on the monthly benefit you can receive, so higher wage earners can wind up with a similar payment compared to those folks who earned substantially less over their careers, he said.

The maximum Social Security Benefit is $3,698 per month in 2018.

Filing for benefits prior to your full retirement age can also substantially reduce the amount you receive – so much so that someone who earned less but waited until their full retirement age to file could receive more than you if you filed for benefits as soon as you were eligible to, he said.

Now to the problems facing Social Security.

DeFelice said you’re correct in saying that it is largely an antiquated system that was put into place in a vastly different world than the one that we live in now.

The Social Security Act was passed into law in 1935 as the cornerstone of President Roosevelt’s “New Deal” with America, he said.

“When it was first implemented the math behind it was based on birth rates and life expectancy at the time, which virtually ensured its financial viability,” he said. “There were 42 workers putting money into Social Security for every one worker taking money out.”

The average life expectancy back then was 62, and you were not eligible to collect benefits until age 65, he said. Those that lived beyond life expectancy only wound up collecting for a few years before they died.

Fast forward to today.

“There are only three workers putting money into Social Security for every one worker taking money out, and in another 10 years that ratio is expected to drop to 2 to 1,” he said.

You can start collecting at age 62 today, and average life expectancy is now age 85.

“You don’t have to be a rocket scientist to quickly figure out that this is simply not sustainable in today’s world,” he said. “When it was created Social Security was merely insurance against living too long, and it was never intended to be a retirement program that we would draw on for nearly a quarter of our lives.”

Until the math is remedied in some way, DeFelice said, “We have to live with the fact that the status of Social Security for our children and grandchildren sadly is an unknown.”

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