I saw this last Fall and shrugged it off as important, but not urgent. It's a win for fiscal responsibility. It's not getting much press. It's responsible governance initiated by the Obama administration that is getting very little media play that deserves a closer look.
The (now nixed) strategy (aka interest free loan program) was to take early retirement at age 62, then at ages 66-70, return all the money received over the previous 4-8 years and refile for social security to receive greater benefits benefits available to those who retire at ages 66-70.
The kick was you had to have a spare $100,000-$160,000 or so hanging around to take advantage of this option. It was more than an interest free loan. It was a way to have your cake and eat it too, a concept that only people affluent enough to do the payback could afford. Imagine getting $1,000-$1,600 per month to play the stock market for 8 years, then at the end you only have to return the original funds you received. You get to keep all of the proceeds.
This sweetheart of a deal came to an end last week.
The Social Security Administration made the new withdrawal and suspension rules effective last Wednesday, but will accept comments for 60 days and will post a permanent rule at the end of the comment period. The lack of media attention on this fiscally responsible rule highlights the hypocrisy of fiscal conservatives. Unlike the payroll tax holiday, this rule change benefits the Social Security Trust Fund. You'd think that Obama would be crowing about this rule change, but all we're hearing are crickets.
Crocodile Tears
Kiplinger is going to have to rewrite their Social Security strategies and nix Strategy #3. Interestingly, they have a "call to action" article posted as of last Wednesday encouraging their readers to comment on the Social Security Administration's changes to withdrawal rules.
What Kiplinger rightly points out is that there's a bunch of people who elected to do the payback strategy are mid stream in the process and the SSA made this change with about 2 months of poorly publicized notice. Meaning anyone who planned to get greater benefits later needed to file their withdrawal from SSA immediately (as of last September) or they would stay at reduced social security benefits for life. Ten years ago only 500 people utilized this option per year, but the option was gaining popularity every year and those numbers nearly doubled by 2009. It's true, this is a sudden change (for a government agency if only this was about DADT), however, I'm not sympathetic to those caught in this snare.
Affluent retirees want to retain their ability to withdraw and reapply for social security benefits and are willing to repay the money with a "reasonable" interest payment, which again, will be lower than what a savvy investor can generate. Isn't this what the vaunted private market is all about? If these retirees wanted a high paying annuity, then they should have bought one on the free market.
Annuities in Perpetuity
This is a little publicized win for the tax payer. We've been subsidizing an interest free loan program for affluent retirees for decades. Now, I'm all for an annuity, but we're talking about Social Security's modified perpetuity that ends at death. (True perpetuity investments are rare.)
If you wanted an annuity that paid $1,500 a month for 84 months, you'd have to put in more than $120,000 to start (with no absolute guarantee on your rate of return) and at the end of eight years you'd have zip. For the average retiree, Social Security keeps paying you long after you've recovered your contributions plus interest. The SSA interest-free loan program was so attractive because at the end of 8 years you'd refund social security and then mulligan for up to a 57% increase in monthly benefits for the rest of your life. Why didn't more people do it? Well, a lot of people need their social Security money to pay the rent.
Wait!
Isn't this social security we're talking about? What about the 40 years or so they paid into the program first? Shouldn't I calculate that in? Yes and if you look at the linked annuity calculator, you can see that you get back your 40 years of Social Security contributions after about 5 years of retirement.
Hypocrisy Now
The irksome takeaway from eliminating the Social Security Mulligan is the hypocrisy.
Where's the Tea Party on this? This is a win for the Social Security Trust Fund that is going to save it millions of dollars, but we got more crickets. No party affiliation, my booty.
Where's Sarah Palin, Dick Cheney, Dick Armey and Karl Rove on this? What? and find something nice to say about President Obama's Administration? forgedaboudit, here, have some cricket sound effects.
What's Cramer, Cavuto, Bartiromo and other finance reporter's take on this? What about Hannity, Beck or O'Reilly? Buchanen, Scarborough? After all, most of them decry the trust going bust every chance they get. This policy change is a boon for new business with privately owned investment firms. Why not crow about a fiscally responsible policy change ...for a change? Yep, you got it, more crickets.
Where are the Libertarians like Ben Stein or Rand & Ron Paul on this tax payer saving, policy change? Why aren't they hopping up and down with approval? It reduces government spending. What? Why would any Libertarian find anything positive to say about anything a Democratic Administration does? It would be unlibertarian? ...and I'll dispense with the crickets in favor of a deafening silence.
It's not lost on me why the Tea party, Republicans, Libertarians and finance reporters aren't giving this policy change much press. It's personal. It's political. It's cherry picking the facts to support moral bankruptcy dressed up as a political philosophy. Social Security's closing the Mulligan Loophole and saving money doesn't fit their Obama frame, so they aren't talking about it.