7 Secrets You Won't Learn From Social Security

By Jennie L. Phipps | Bankrate.com

In the first season of "Friends," Rachel Green looks at her first paycheck as a waitress and asks, "Who's this FICA guy, and why is he getting all my money?"

That's one hard lesson about Social Security. Another is that when it's time to claim, you can't depend on the Social Security Administration to be your personal adviser.

In an effort to save time and cut costs, Social Security employees generally don't give case-specific advice. So that means you are on your own to make the most important financial decision of a lifetime. You have to read the rules and do the research yourself.

William Meyer, whose website, Social Security Solutions, gives Social Security advice for a fee, says you also can't depend on Social Security to follow instructions you give them electronically. If you have a request that is not the most common choice, you'll need to go to the Social Security office and make the request in person, he says.

Read on to brush up on Social Security benefits that are not commonly known.

300 ways to claim the goodies

There are more than 300 ways a married couple can decide to take their Social Security benefits, according to Alicia Munnell, director of the Center for Retirement Research at Boston College. You can't ask Social Security to list them all, so what's the right choice?

Munnell says it's hard to beat waiting until you're 70 to begin benefits because the monthly payment is 76 percent higher than it would be if you had started to take benefits at 62 and 32 percent higher than it would be if you claimed at age 66.

Betting against death

On the other hand, some people advocate drawing Social Security benefits at the first opportunity.

Courtesy: Bankrate/Doug Carey/WealthTrace

Doug Carey, who founded the financial planning software firm WealthTrace, says Social Security doesn't see itself as an odds maker, but it does require you to bet on your longevity. He offers this chart as proof. It graphs the break-even point for a person who earned the inflation-adjusted equivalent of $70,000 per year for 35 years. If this person waits until 70 to claim Social Security and lives until at least age 90, he'll accumulate almost $162,000 more in benefits than he would if he had claimed at 62. But there's a possibility of losing the bet and getting nothing.

Retired law professor and Social Security expert Merton Bernstein says the longevity bet odds are bad, so claim early. "You never know when the bell will ring. I subscribe to the Woody Allen principal: 'Take the money and run.'"

A reward for delaying divorce

If you're not happy in your marriage after nine and a half years, hold off before hiring a divorce attorney.

"Stay married for at least 10 years," says San Francisco-based Bank of America personal banker Raphael Gilbert.

Why? That's what it takes to stake a claim to your ex-spouse's Social Security benefits. If you terminate the marriage after nine years and 11 months, you're out of luck.

If you make it for 10 years, you can collect a Social Security benefit based on up to half of your ex's earnings or on the basis of your own earnings -- whichever is higher.

Bigger reward if ex has 'departed'

And we have another dirty little secret for you. If you haven't remarried, chances are your ex-spouse is worth more to you dead than alive -- especially if he or she was a high earner. Once an ex-spouse passes away, you'll be treated just like a widow or widower. If you are at least 60, you'll be able to collect your late-spouse's benefit and allow your own benefit to grow unclaimed until you reach age 70, when you can switch if your own is higher, according to Carol Thomas, who worked for the Social Security Administration for 28 years and answers questions about Social Security at RetirementCommunity.com.

Assuming your ex will dwell on Planet Earth to a ripe old age, the longer your ex-spouse delays claiming Social Security, the better it is for you. So, if you get a chance, encourage your ex to work until age 70. Then, when it's all over, you'll get to claim half of his or her maximum Social Security. Or once you and your ex-spouse reach full retirement age -- usually 66 -- you can claim half your ex's benefit and let your own grow untouched until you're 70, says Thomas. Consider it payback.

More flexibility for widows and widowers

Social Security does a good job of explaining widow and widower benefits, but Ken Luck, a spokesman for TIAA-CREF Financial Services, says it doesn't clearly spell out a key difference between widow/widower benefits and spousal benefits. A widow/widower can begin benefits based on his or her own earnings record and later switch to survivors benefits or begin with survivors benefits and later switch to benefits based on his or her own record -- even if the surviving spouse is filing before full retirement age. You can't do that with spousal benefits.

In other words, a widow can begin drawing the full amount of her late husband's Social Security when she is as young as 60. Then she can choose to leave her own Social Security alone, allowing it to grow in value until her full retirement age -- or even age 70. This works for widowers, too.

SSDI Step 1: Hire help

When you apply for disability insurance, Social Security doesn't tell you that your first step ought to be hire a lawyer or other expert adviser. Allsup, a private firm that advises people about how to get SSDI, says Social Security doesn't even make it clear that an applicant can have representation from the very beginning of the application process. As a result, lots of people don't get help until they've been initially denied, and that slows down the process unnecessarily, according to Allsup spokeswoman Mary Jung.

Jung also warns SSDI applicants to be accurate and precise on the application. Small mistakes can make a big difference. Minimizing how much exertion was required to perform the person's job is a common mistake that frequently results in denial of a claim.

[Also see: How to Save at the Grocery Store]

35 years is the magic number

The Social Security website offers an explanation of how your benefits are calculated, but it's a little hard to follow. You can find a simpler explanation at myretirementpaycheck.org, a website sponsored by the National Endowment for Financial Education.

Your Social Security payment is figured using a complex calculation based on a 35-year average of your covered wages. Each year's wages are adjusted for inflation before being averaged. If you worked longer than 35 years, the government will use the highest 35 years. If you worked for less than 35 years, they'll average in zeros for the years you are lacking. You don't have to be a math genius to figure out the impact of that -- it drags down your average. If you can avoid zeros by working a couple of years longer, you'll increase your Social Security payment.

More From Bankrate.com 

• 7 risks of retirement
• Investments for fat returns
• Annuity right for you?

Are Your Kids Making You Broke?

Here are 4 ways to break the cycle of feeling like an ATM machine

If your kids — or even your grandchildren — are making you broke, it's important to put an end to excessive financial handouts that could be driving you into debt.

As parents, it's natural to want to help our kids in every way possible. And for many people over 50, that means providing both emotional and financial support to adult children. 

In fact, according to a June 2011 Investor Index survey by TD Ameritrade, not only are Baby Boomer parents willing to come to their children's financial rescue, many parents are also sacrificing their retirement and economic security to do so. A recent AARP studyshows that 49 percent of adults age 46-65 say that they find it difficult to save for retirement.

And since the first Baby Boomers turn 65 this year, the highlights of the TD Ameritrade survey are all-the-more striking. Among the findings: 

• 67 percent of Boomers surveyed say they would feel obligated to financially support their adult children if asked
• 57 percent of those polled said they were willing to support their offspring even if it hurts their own retirement
• 54 percent of Boomers have had adult children live with them for at least three months
• 42 percent of those who did allow adult children to return home said doing so had a negative impact on their finances

So what's to be done?

Experts say a combination of tough love, fiscal discipline and good communication between family members are all required in order to help your children achieve financial independence — and help you salvage a comfortable retirement.

In cases of extreme financial dependence, which can sometimes veer into a financially abusive relationship, it may also be necessary to enlist the assistance of a third party if you need help in cutting the financial apron strings.Start With a Heart-to-Heart TalkAlthough many parents are reluctant to share the details of their financial circumstances with their children, when your kids are taxing your finances, it's a good idea to paint a realistic portrait of your situation. Explain to your children honestly what you can and cannot afford. Often times, children may mistakenly think that you are better off economically than you really are. There's no shame in telling your children that because of a host of reasons — perhaps the downturn in the stock market, the soft real estate market, your own work situation or expenses — you simply don't have a lot of extra cash to give or loan them. By candidly divulging at least some basic information about your own financial standing, your children may be less inclined to lean on you for economic help. "This is something that we deal with all the time and is always a very difficult conversation to have with a parent," says Jonathan Blumenthal, CFP and senior vice president at Peak Capital Investment Services. "However, the fact is, retirement is not a possibility when you are saddled with the expense of having to take care of adult children."Set Reasonable LimitsIf your child does request monetary help, only agree to provide financial support if you can realistically afford to do so without sacrificing your own retirement or seriously impacting your financial health. And if you do say "yes" to helping out a child, be sure to impose reasonable limits and boundaries.

"No parent wants to see their child struggle financially, but assistance should come within reason — and with firm expectations," says said Lule Demmissie, managing director of investment products and retirement at TD Ameritrade. "While food and housing might be reasonable, a data plan for your son's smartphone shouldn't come between you and your retirement." 

Encourage Financial Responsibility

Even if your child relies heavily on you for economic support, you can still try to encourage him or her to be fiscally responsible in some areas. For example, if your child is living at home, charge them a modest amount for rent and food, suggests Jesse Ryan, managing director at Accounting Principals.

"If the parents can afford it, take the money that the child is paying for rent and place it into savings for a 'move out' plan," Ryan adds.

Create a Gradual Transition Plan 

For those who have adult children that have returned to the nest, be polite but firm in making it clear that the current living arrangements are not meant to be permanent. In fact, you should create a gradual transition plan where you both agree that, over time, you will start decreasing the amount of financial support you are providing to your child.

The idea is to do this gradually, "so that it's not so shocking for your children," Ryan says. Similarly, Ryan recommends setting a timeframe of six months to one year or so when the adult child is expected to move out and start living on their own. "By that time they will have a nest egg for expenses and will be used to paying for themselves," says Ryan. 

Helping your child out of an occasional financial pinch can be emotionally rewarding for parents with the financial wherewithal to provide such economic help. But if you're an aging parent struggling with your own considerable bills, it really is necessary to establish proper financial boundaries so that your kids don't wind up driving you into debt.

Lynnette Khalfani-Cox, The Money Coach®