View attachment 763080
Let's address the idea that some propose of raising the Full Retirement Age (FRA) to 70 and it NOT being a cut in benefits because the monthly check isn't reduced. Those supporting that premise are factually incorrect either by mistake or on purpose (and I'm not making a claim either way on that point).
I was thinking about this in the shower this morning and over coffee so decided to show mathematically how that is incorrect.
So let's establish some baseline conditions to make the calculations easier:
- A couple share the exact same birth date.
- A couple starts drawing SS benefits on the same date based on FRA.
- One spouse has the higher income and dies on his birthday at age 77.
- The surviving spouse has either no income or a lower income and dies on her birthday at age 87.
- For purposes of these scenarios cola is ignored because it doesn't change the mathematical principals it just makes thing more complicated as you then have to (a) determine the COLA for each year and then do calculations for each individual year over a 20 year span. Again the principal is unchanged, it just make the math more cumbersome.
- No intent on insulting anyone by sex, feel free to change genders for male/female, male/male, female/female and who is the primary "bring home the bacon" person as you wish. Given the income and age assumptions it doesn't matter. I'm the higher earning in my couple, my boss is the higher earning in her marriage and he's a stay at home Dad. So consider it in the light of whatever floats your boat.
[DISCLAIMER: Ignore the fact that the numbers get pretty big. Remember these are cumulative number supporting 2 people for 10 years and 1 person for an additional 10 years. The numbers therefore are spread over 20 years.]
[DISCLAIMER 2: Of course exact numbers vary based on age, when one or both members of the couple begin drawing social security, when one spouse actually passes and when the other spouse passes.]
SCENARIOS A RESPECTIVELY:
In scenario a the husband brings home the bacon and the wife is a more traditional stay at home none-working spouse. Well traditional for the 50s, 60s, and early 70s. Because the wife didn't work in a SS qualifying job, but instead maintained the house, cleaned the house, cooked the meals, did the laundry, took care of the kids, she has no SS benefits based on work history.
Scenario A (FRA = 67) [Column B] establishes the baseline for "A". The husband is the only one drawing SS benefits and when he passed at 77, the wife is eligible to draw at his rate for the remainder of her life for old age support. Total benefit draw here is over a period of 20 years.
Scenario A (FRA = 70) [Column C] shows the impact of raising FRA to 70 years and establishing that as the new 100% threshold. The husband is the only one drawing SS benefits and when he passed at 77, the wife is eligible to draw at his rate for the remainder of her life for old age support. Total benefit draw here is over a period of 17 years.
SCENARIOS B RESPECTIVELY:
Here we have a more modern reality where both of the couple work. One being a higher wage earner than the other.
Scenario B (FRA = 67) [Column D] establishes the baseline for "B". In this case both the husband and wife work and qualify for benefits in their own right. The husband draws $3,000 per month until his death and the wife draws $2,000 a month until his death. Upon his death the wife is able to draw at his rate for the remainder of her life for old age support. Total benefit draw here is over a period of 20 years.
Scenario B (FRA = 70) [Column E] shows the impact of raising FRA to 70 years and establishing that as the new 100% threshold. In this case both the husband and wife work and qualify for benefits in their own right. The husband draws $3,000 per month until his death and the wife draws $2,000 a month until his death. Upon his death the wife is able to draw at his rate for the remainder of her life for old age support. Total benefit draw here is over a period of 17 years.
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As can be clearly seen, raising the FRA from 67 to 70 results in a reduction of benefits (Scenario A = $108K and Scenario B = $180K).
The whole purpose of raising FRA from 67 to 70 is to reduce benefit payouts by the system, how is that achieved? (A) B more people die without drawing benefits, and (B) by reducing the number of years that individuals are likely to draw benefits from the system since FRA is now higher.
Anyone that can't recognize that as a "cut" in benefits is either (A) mistaken or (B) doesn't understand the math involved. In past discussions the individuals that don't "see" the cut tend to focus solely on the monthly check and ignore the impact over time.
Hope this helps some.
WW
[NOTE - this is a post made for another board the other day.]
