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Are You a Social Security Double-Dipper? Perhaps Not Much Longer

When and how you claim Social Security benefits has a huge financial impact on your retirement, although many older Americans aren't aware of all their options and lose out on some serious money, according to a survey released today by Financial Engines.

Close up of social security application

The Sunnyvale, Calif.-based company found that single retirees potentially miss out on $100,000 or more over the course of their retirement, while for married couples the amount is $250,000 or higher.

Financial Engines' findings come from a recent online poll of 1,008 people ages 55 to 70. In a quiz on claiming benefits, nearly three-quarters of those who had not started taking Social Security earned a grade of C or lower.

>> Top Social Security Questions Answered

Just as Financial Engines is calling attention to the many ways to claim and boost benefits, President Barack Obama wants to eliminate some of these strategies.

A single line in the president's budget released last week recommends getting rid of "aggressive Social Security claiming strategies, which allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits."

He didn't elaborate, so it's unclear what he would abolish. Social Security experts, whom we asked to parse the budget-speak, suspect it's likely a rule that allows a retirement-age worker to claim and suspend benefits, paving the way for a spouse to receive a benefit based on the worker's record. Meanwhile, the worker and the spouse, who is entitled to a benefit based on his or her own work record, can continue to accrue retirement credits until reaching the maximum amount at age 70.

Webster Phillips, senior legislative representative for the National Committee to Preserve Social Security and Medicare, says both spouses have to be at full retirement age - 66 today -  to do this.

>> Social Security Numbers on Medicare Cards

This strategy is seen as helping higher-income households because they can afford to postpone benefits until age 70 to get a bigger payout, Phillips says.

The National Committee hasn't taken a position on the president's recommendation. It's also not clear how many people actually use these strategies or the impact on the program, Phillips says. Social Security's trust fund is expected to exhaust its reserves in 2033.

Alison Shelton, a senior strategic policy adviser at AARP's Public Policy Institute, says this wouldn't be the first time the government has modified claiming strategies.

Until a few years ago, people could claim retirement benefits early and then apply for a so-called do-over, Shelton says. They would have to repay all the benefits received to date without interest, but their monthly benefits going forward would be higher. Essentially, these people received an interest-free loan from the government.

>> Get discounts on financial services with your AARP Member Advantages.

Now, retired workers can seek a do-over only within the first 12 months.

Some of these strategies grew out of a 2000 law meant to encourage older individuals to stay in the workforce. It took a while for financial advisers to recognize how to use these rules to maximize benefits.

"There is a growing business of understanding the Social Security rules. Just like I did with IRAs," says Ed Slott, a CPA in Rockville Centre, N.Y., who writes books and holds seminars that explain the intricacies of individual retirement accounts, particularly Roth IRAs.

Photo:  Courtney Keating/iStock

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