Topics:
Suspending benefits before full retirement age
Survivor benefits on a first marriage
Going back to work after starting Social Security
How will the recession effect Social Security benefits?

If a husband and wife are both 62, can the husband file and suspend so the wife can start her spousal benefit?

No. If he files before full retirement age, he may not suspend his benefit. This can only be done after FRA.

If the wife is already receiving her benefit, can the husband apply for his spousal benefit at 62?No. Before full retirement age, a person does not have a choice about which benefit to receive. He will be given his own benefit because it is higher. And then he can’t earn delayed credits.

Can a wife start her spousal benefit at 62 and then switch to her own full benefit at FRA?

Not if her own benefit is higher at the time she applies. I’ll say it again. If a person applies before full retirement age, they don’t have a choice about which benefit to receive.

If a husband starts his benefit at 62 and his wife files for her spousal benefit at 66, does she get 50% of his reduced benefit or 50% of his PIA?

She gets 50% of his PIA, not 50% of his reduced benefit.

What if he starts his benefit at 70? Does she get 50% of the higher benefit?

No. She still gets 50% of his PIA. The spousal benefit is always based on the PIA. The actual amount of the spousal benefit depends on when she applies. If she applies at full retirement age, it’s 50% of his PIA. If she applies at 62, it’s 35% of his PIA.

My client tried to file for his spousal benefit at FRA and the Social Security worker told him he couldn’t do it because his own benefit was higher. What now?

Ask to speak to a supervisor. Many reps aren’t familiar with the “claim now, claim more later” strategy, but it’s actually on the Social Security website now, so you may have to send clients back to their Social Security offices with citations in hand.

What if the husband is delaying benefits to age 70 and he dies before then?

The survivor benefit will include any delayed credits he has accumulated up until his death.

If a widow remarries after age 60 and that marriage ends, can she receive survivor benefits based on husband #1′s work record?

Yes.

What happens if a person goes back to work after starting Social Security?

If the person is under FRA, the earnings test applies. $1 in benefits will be withheld for every $2 earned over $14,160. If the person is over FRA, no benefits will be withheld.

If a person does a do-over by filing SSA Form 521, do spousal benefits have to be repaid as well as the primary worker’s benefits?

Yes.

Can a surviving spouse do a do-over? Let’s say she applied at 60 and wishes she had waited until 66.

Yes.

Does a divorced spouse have to wait until her ex-husband files for benefits before she can file for her divorced-spouse benefit? How will she know, if she doesn’t keep in touch?

If they’ve been divorced at least 2 years, he only needs to be 62. He does not need to have filed for benefits.

Are unclaimed benefits increased by COLAs?

Yes.

If a retiree has minor children, can the children also receive Social Security?

Yes, until they turn 18. Part of the breakeven analysis for a retiree with minor children is the addition of the children’s benefits. In some cases it might make sense for him to apply for early benefits so the kids can get theirs. But you have to balance this against the lower survivor benefit his wife would get.

What happens if a person is on disability when they reach full retirement age?

At FRA they switch over to their retirement benefit and the benefit amount doesn’t change.

How does the Government Pension Offset (GPO) work if the “pension” is in a defined contribution plan?

That’s a good question. It will probably be treated as if it were being paid out as an annuity. The only thing clients can do is be honest about whatever retirement accounts they have from non-Social Security covered jobs and let the Social Security people figure it out.

Has the recession worsened Social Security’s financial position?

Somewhat, but it seems to be temporary. In 2009, the OASDI trust fund still took in more than it paid out, but it did have to draw upon the interest, which wasn’t expected to happen until 2016. However, by 2013, payroll taxes should once again exceed benefit payments. High unemployment has caused some people to claim benefits earlier than expected, while dwindling retirement accounts have caused others to keep working longer than expected. We’ll have to see how it all balances out.

You say baby boomers are turning 62 at the rate of 10,000 per day. Where’s the best place to find them?

The best place is the workplace. Some of our advisors have had success giving lunchtime seminars. Another good place is through CPAs and other centers of influence. Social Security is a hot topic these days, so it is not really difficult to find people who are interested in learning more about it.

I hope these questions gave you a taste of the complexity of Social Security. By committing to the Savvy Social Security Planning for Boomers program, you’re covering yourself on an important topic.

Another case mentioned is a laid-off factory worker with $120 a week garnished from her $300 a week unemployment check to apply against her son’s college loan debt. The son is also unemployed, having lost his $29,000 a year job 8 months ago.

A third case describes a college loan debt that has grown from $28,000 to more than $90,000, with monthly payments that were originally $230 now $816.

How do such cases happen? Here is an excerpt from the article:

There is an estimated $730 billion in outstanding federal and private student-loan debt, says Mark Kantrowitz of FinAid, a Web site that tracks financial-aid issues — and only 40% of that debt is actively being repaid. The rest is in default, or in deferment, which means payments and interest are halted, or in forbearance, which means payments are stopped while interest accrues.

College loans are difficult to restructure, as well. One individual was able to renegotiate home mortgage terms but has not been able to do the same with outstanding college loan debt.

While some of the defaulted debt, or that in forbearance, results from financial hardship, it appears that some is also the result of mismanagement by the debtors. One gets the impression that some who borrow for college make no effort to understand the financial details of the loans they assume. This seems to be a familiar story of how individuals simply do not understand basics of personal finance.

Is it any wonder that the value of a college education is now being questioned more than it used to be? Perhaps a basic education in personal finance would help more people make informed decisions about college and how to handle the financing of that endeavor.

Student loans are largely held by SLM Corp (SLM), familiarly called Sallie Mae and Student Loan Corp (STU), a subsidiary of Citigroup (C), with smaller amounts of such loans placed by individual banks. SLM currently trades at $12, down nearly 80% from its high in early 2006. STU is at $25.10, down nearly 90% from its high in April, 2006.

Sallie Mae was originated as a GSE (government sponsored enterprise) in 1972 but completed privatization (as a publicly traded company) in 2004. Student Loan Corporation was founded as a non-government enterprise and remains that today. Approximately 78% of the outstanding loans issued by STU (approximately $17 billion) were government insured against default as of 2007. Sallie Mae holds a much larger amount of government guaranteed debt, $145 billion according to Mark DeCambre in the New York Post.

Both companies lost the opportunity to issue more government backed loans in the future as of March this year when a bill was passed into law and signed by the president that re-established direct lending to students by the government. The changing nature of the business opportunity has renewed speculation about the sale of both SLM and STU, or of their break-up into spin-offs. Such rumors helped sparked a 11% rally in SLM this past week after announcements of increased loan loss provisions had dropped the stock by the same amount the previous week. STU, without any specific news, has rallied even more, up 19% from July 21 and 12% in the past week.

STU is certain to be a possible sale by Citigroup, who owns more than 80% of the company, as the giant bank tries to raise capital to deal with its solvency issues.
At the current market price, C’s stake in STU is worth more than $400 million.

More stories about college debt problems can be read in a 2008 New York Times article by Jonathan D. Glater.

This article was originally published August 1 at Seeking Alpha.

Anchoring Effect discusses some of the many experiments that show how immediately preceding information exposure greatly influences how people make estimates or valuations. Those who are exposed to a low number and then immediately asked to make an estimate of how many things are in a certain category give significantly lower estimates than people who are exposed to a high number. Of course, the effect only occurs if the subjects have no idea of the correct answer and are making pure guesses.

Another effect is that someone is more likely to make a impulse purchase if they are first exposed to a high price (say $1,000) and then told the item has just been put on sale for $400 than if the first price they see is $400.

We are all too easily influenced by factors that have no relevance to a estimation or valuation process that is made in close time proximity to the distraction. Most of us are quite unaware that these kinds of processes are happening to us.

Confirmation Bias addresses the common effect of information filtering. We tend to accept information which is in agreement with what we already know or believe and to discount information that conflicts with our biases. For some people, Paul Krugman can offer no information that can be used. Others react the same way to Glenn Beck. Both groups of people suffer from strong confirmation bias.

Confirmation bias is why I like to investigate things that can be expressed in mathematical terms: graphical plots, correlation coefficients, algebraic equations, etc. Over the years I have found that I have had to modify what I “knew” after experiencing some clear mathematical logic. And I have also learned that what once seemed like “clear mathematical logic” based on experimental data can be changed by additional data.

For those who really want to improve understanding of very complex issues or systems, it is necessary to recognize that everything you think you know is suspect. Even that which is mathematically proven must be challenged, unless you can verify every assumption (explicit and implicit) and determine that no additional independent data can be added in the future.

There are other interesting looking posts at You are not so Smart. I plan to return there to further investigate my stupidity.

This article was originally published July 31 at Seeking Alpha.

Goldman Sachs (GS) and the SEC (Securities and Exchange Commission) have announced a settlement of the suit over the Abacus security case which was a civil action charging fraud by Goldman. According to the SEC announcement, which I watched on CNBC, Goldman will pay $550 million in disgorgement and penalties. In spite of this being a record cash settlement, this appears to be good news for Goldman and the stock is trading well after hours above $153, up about 6% from the close and over 11% from the day’s open. By the end of after hours trading Friday, GS had slipped back to $146.40 still up 5.3% over two days that saw the broad indexes decline by 2.5% to more than 3%.

The entire press release and supporting documents are available here.

No Fraud

Others who might have standing to file suits for damages related to Abacus and similar securities appear to be completely undercut by this settlement. Goldman admits no fault. The question of fraud has been taken off the table. Here are some of the words used by SEC spokesmen in the press conference:

* Goldman misled investors with incomplete information.
* The problem was with deficient marketing materials.

Nothing was said about “deliberate” actions. The implication I take away is that the assumption can be made that the entire episode was inadvertent, accidental. I personally do not subscribe to that interpretation.

SEC Statements about What has been Accomplished

Here are some other key items selected from the press conference:

* The settlement assures accountability, punishment for past misconducts and prospective reforms.
* Goldman agrees to tighten internal controls and provide full, accurate and complete disclosure in the future.
* The settlement reinforces the concepts of full disclosure, honest treatment and fair dealing.
* Goldman is consenting to a permanent injunction preventing it from violating the anti-fraud provision of the Security Act of 1933.
* GS agrees to cooperate with the SEC in the prosecution of former Goldman executive Fabrice Fourre.

What has not been Accomplished

A number of things have not been accomplished:

* The discussion of the documentation of this case in open court will not occur.
* Internal responsibility for the misconduct within Goldman has been largely hidden.
* Clarification of the distinctions between suitability responsibility and fiduciary responsibility has not been made.
* No specific future actions by Goldman have been specified. They have simply promised to “do better”, so to speak.

The Case Remains Open Ended

There are two things to mention here. One is pragmatic and one is intellectual.

First, the case against Fabrice Fourre remains open and it appears that Goldman will cooperate in his prosecution. To this observer, it appears that the rookie second stringer has been hung out to dry. It does not appear that he was the architect of any of this; he appears to have been little more than a sales manager. Was he following a sales script? Who wrote and approved the script? Yet he may well be the only individual suffering legal consequences. Is the “Fabulous Fab” going to be the collateral damage for Goldman in this affair?

The second point centers on the statement by the SEC spokesman that “Goldman is consenting to a permanent injunction preventing it from violating the anti-fraud provision of the Security Act of 1933.”

Goldman does not admit to any wrong doing but is consenting to an injunction to prevent it from committing fraud in the future. Is such an injunction necessary for a firm which has not committed fraud?

Why must Goldman consent to an injunction to follow the law? Did the law not apply to them before the consent? This is a joke!

This resolution seems to do little to stop the type of behavior that allowed securities such as Abacus to be structured. It may be that enough lessons have been learned that such actions will not occur again. But maybe not.

The resolution does little to punish Goldman or those Goldman executives that condoned the actions questioned. Only Fourre has been singled out for further prosecution. Those who directed him may escape scrutiny.

Goldman, the company, has suffered a $550 million expense against approximate annual earnings of $12 billion and sees its market cap increase by more than $7 billion on the day. A mere slap on the wrist has been administered.

The SEC spokesman emphasized the need for accountability. Has accountability has been served?

Barry Ritholtz Says Accountability Has Been Served

An article at The Big Picture has a different view than I have expressed in the above discussion. Ritholtz feels the reputational damage to Goldman will be long lasting and the exposure to future litigation from other complainants may prove far more costly than the SEC settlement.

Ritholtz is also of the opinion that critics of the current settlement may be quieted by further SEC action against other firms for activities similar to those of Goldman Sachs.

As far as accountability being served, I am in a wait and see mode. If this is the end of the story, accountability has been trashed. If there is a lot of future related action, by the SEC and others, then my mind can be changed.

Jan. 22 U.S. Banks to Face New Trading Restrictions

Jan. 23 Housing Double Dip?

Jan. 23 Aftershocks from the Massachusetts Earthquake

Jan. 24 Long Term Unemployment: Less than Actual Out of Work

Jan. 25 Hedge Funds, Investment Banks: When Will They Ever Learn?

Jan. 26 Housing Market Has a Way to Go

Jan. 26 Housing: Government as Casino Player

Jan. 26 New York Fed: Further Investigation Regarding the AIG Affair

Jan. 26 Are Existing Homes and New Homes Following Different Paths?

Jan. 28 Job Recovery Cycle Intact

First, yours truly attempted some further illustration and logical discussion. This led to what follows.

My Logic

As we collect information we quickly think we understand a thing and confusion goes to a minimum. After we get to a certain point, additional information tends to:

(1) Create overload;
(2) Start to accumulate contradictions;
(3) Suffer from loss of memory of information obtained early on.

This situation can be improved by keeping records and organizing the information. This results in a lessening of the rate at which confusion drops due to the distraction of the organization process. Because all the information remains more visible through organization, we never reach the low level of confusion of the first graph because selective filtering does not occur. This filtering allows the illusion of understanding by the selective use of information. But again this process reaches a minimum point in confusion, but not as low a level. When confusion starts to turn up due to information overload, organization keeps it from rising as quickly.

If we add analysis to the organized data, the drop in confusion is even slower as early on the data is too meager to give confidence to analytical results. The minimum in confusion comes later in this case, and at a higher level, because analysis tends to highlight what is not known quite effectively. As time and amount of information increase, more things become defined but never to the extent that they can completely overcome the increase in the unknowns discovered.

A summary of what I am saying would be that the more we know, in general, the more we discover we don’t know. Organization and analysis can reduce the confusion resulting from information overload, but will add to the identification of what is not known. Confusion with increasing information may go through a minimum, but the infinity of the unknown will never allow confusion to go below some preliminary low level and will force it to go higher.

The one exception comes with what we call breakthroughs. When Newton formulates the laws of motion or Schrodinger defines the wave equation or Crick and Watson discover the DNA helix, discontinuities occur where confusion drops spectacularly. But that drop is temporary and all the new frontiers opened up quickly expand the unknown. Confusion returns.

Guest Commentary

Next, when this was posted on my Seeking Alpha Instablog (link provided at end of this article) some very good comments were written. One is particularly humorous, and, at the same time, very insightful. It is written by a commenter known only to me as “Albertarocks”, a pseudonym. Here is what “Alberta…” had to say:

Ok, here’s a take from a guy who’s studied technical analysis for decades.

These charts are clearly a mirror into the human psyche. Although these masterpieces aren’t necessarily stunning in their complexity, they are indeed mind boggling in their revelations. At this point in time, there are more than 345 conclusions that can drawn, but I’ll try to narrow them down as much as possible in the short time allotted.

Ok, let’s get to work:

First of all, with no organization added to the available information, it is apparent that a person who has absolutely no information, known in most circles as “the dolt”, will perform exactly as well as the individual who has all the information. This type of personality is commonly referred to as the “know it all”. This phenomenon has been proven to be factual time after time, in various and numerous occupations throughout the lands and millennia.

A prime example of where this phenomenon is commonly encountered in the modern era is in the realm of stock market investing. It has been proven over many decades, and indisputably so, that a pairing of two individuals, the common “know it all” and the average every day “dolt”, will invariably result is a nearly identical financial performance through the course of a solitary calendar year. In most cases this has been proven to be a negative number for both individuals, although not necessarily so.

Strangely enough, in some pairings, their success can be measured in the hundreds of thousands of dollars to the plus side. However, with the given data, when we encounter an individual who boisterously reports that he has earned $250,000 in the past 10 months, we can not yet conclude whether he is a “know it all” or a common “dolt”, but we can assume he is one or the other. How do we come to that conclusion? By observing that he has dollar bills hanging out of his pockets and that his shoelace is untied, we know that he has not yet discovered organization.

By the process of elimination, and having surmised that the individual has not yet discovered organization, we can surmise conclusively that whichever category this individual would best fit into, we do know that he is totally confused.

Now, it is entirely possible, using the data gleaned from the charts, to discern whether or not an individual could possibly be a somewhat organized dolt or a completely disorganized know it all. However in order to gather that information, we would need to apply a MACD to the “confusion/information’ trendline. For that we would need the necessary numerical data inputs. However at the time of this writing, that data is unavailable.

It has also been shown that without any organization, many individuals show characteristics of both persona… somewhat akin to a hermaphroditic plant. This persona type is more commonly referred to as a “know it all fuckin’ dolt”. This type is found more often than would be expected in the profession of business journalism.

These charts also show, remarkably, that there is a point of optimum performance in the “confusion” aspect. That optimum invariably occurs when the individual has little or no information. A type of mindless nirvana, a form of complete bliss where the individual knows nothing and is not confused in any manner. They know nothing, yet have all the answers because they are not confused. These are what we call “teenagers”.

Due to limitations beyond my control, this analysis will now come to a conclusion. Given more time and space, it would indeed be fun to share with you the more incredible assumptions that can be drawn from these graphic presentations. Next time, we’ll go into the methods of discerning an individual’s place of birth and mother’s maiden name.

Until then……..

Oct 24 02:17 AM

Link to Instablog post and all comments: Information Overload

This article was originally published about five months ago, but I think that with what has unfolded since, it has even greater significance today. The structural problems in our economic theories, financial systems and our individual situations continue to be revealed. Read the entire article at Seeking Alpha.
http://seekingalpha.com/article/131580-the-seduction-of-america

When it comes to the amount of money involved, the current crisis has had bank failures 70 times those of the Great Depression. Even when the figures are adjusted for inflation and population growth, the current crisis is still much larger in dollar terms.

Read the entire analysis at TheStreet.com. The numbers are truly astounding. http://www.thestreet.com/story/10589081/1/banking-crisis-dwarfs-depression.html