Try Not to be Valedictorian

Hey Paul: I currently in middle-school taking the top classes. My goal is to have straight A’s in high school. Any advice?

 I am glad to hear from another young person. Last week’s column was my first that deviated from “only the serious stuff grown-ups think about” like taxes and social security. In fact this week I met for the first time a reader of my column under the age of 20 – a shout out to Meredith, my new favorite of my daughter’s friends.

I’ll probably not the ideal person to be asking this question – my two sisters were straight A students from kindergarten through college and my brother a 4.0 Civil Engineering student at UK. My goal in high school was to be the top GPA for those who didn’t study – something I think I accomplished although I’m not sure if this a distinction to be proud.

So here is my advice – don’t try to be valedictorian. Sure, work diligently and earn good grades. I have encouraged my three high-achieving daughters to try to get a B in at least one class. There’s a couple of reasons behind my “B’s are not bad advice”. First, you should focus on learning not grades. Second, you will put immense pressure on yourself (or perhaps your parents will) to maintain that perfect 4.0. And third, you will live life conservatively not taking the challenging, risky path that is fraught with failure.

Let me ask you this – what’s your best dive off the board? Head-first, no spring? A pencil? C’mon give me a break. That’s way too safe. When the Jessamine pool opens next month you are going to run down the board, take a deep bounce, and do as many flips as you can before splatting into the water. Why? Because an ugly flip trumps a perfect pencil dive any day.

Hey Paul: I am seeing a lot of ads claiming that Social Security rules are changing this month and that there are strategies to increase our benefits by up to $50,000. Can you explain what this is all about?

 Well like most ads there is some truth and some hyperbole in these claims. First the truth – Yes, the Social Security Administration is changing a few policies on how benefits are paid. The only immediate concern is the changes to what is called the “file-and-suspend” strategy. The option to “get a better deal” ends after Friday, April 29.

The simplest story is a couple, both age 66, where one spouse is a high earner (say the husband but gender is not relevant for how this works) and the other spouse was a low earner. Suppose the husband and wife are entitled to their own social security annual benefits of $20K and $5K, respectively. They could both start their benefits with the husband receiving $20K and the wife receiving spousal benefits of $10K – half her husband’s benefit which is greater than her own benefit of $5K.

The file-and-suspend strategy has the husband filing for benefits and then immediately suspending (stopping) his benefits. This has two purposes – by filing he makes his wife eligible to begin spousal benefits of $10K. By suspending he allows his own benefits to grow by 8% annually once he restarts his benefits. In four years his $20,000 of forgone annual benefits will have grown by 32% to $26,400 when he restarts benefits at age 70.

The BIG social security law change is that while a spouse can still file and suspend, when they suspend this stops ALL benefits based on that person’s earnings record. For the case described above if the husband suspends his own benefits then the wife is no longer eligible to receive spousal benefits. She could file for her own benefits of $5000 at age 66. The monetary damage in this case is $5K each year (the difference between her spousal and own benefits) and a total reduction of $20,000 from age 66 to 70. This loss would have equaled $40,000 if the wife had less than 10 years of earnings and was entirely dependent on the spousal benefit.

Under the new laws could the husband go ahead and start his own benefits of $20K at age 66 and the wife draw spousal benefits of $10K? Yes! This strategy is very appealing as the couple would be up by $80K at age 70 compared to the file-and-suspend strategy. The downside to this go-for-it strategy is that eventually the file-and-suspend strategy will catch up and surpass the cumulative benefits. If one or both live into their early 80’s or older then the file-and-suspend strategy would have been preferred.

To take advantage of the perk of being able to suspend your own benefit and not impact a spouse’s benefit you need to meet three criteria. One, be between the ages of 66 and 70 on April 30th. Two, have a spouse (or minor child or adult disabled child) whose social security benefit is based on your earnings up to you turning 70. Three, have a desire to maximize your own social security by starting benefits at age 70. Many people meet the first two criteria but only a few percentage of people wait until age 70 to start social security benefits.

So if you are one of those rare birds that meets all the criteria to benefit from filing and suspending your benefits, you have only about a week to lock in that strategy. Feel free to contact me for a quick consultation if you are truly perplexed on how to proceed with Social Security benefits.

Dr. Paul Hamilton is an Associate Professor of Economics at Asbury University and a CFP providing financial coaching to middle-class Americans. He is available to provide free workshops to churches, local businesses and other groups.

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