Gaming Social Security

Retirees are trying to improve their return on their past Social Security contributions. The author describes why any success that they have at doing this will come at the expense of Social Security’s long term solvency.

Few, if any, articles on Social Security discuss “Rational Optimization”, and the associated havoc that it can play on projections for the system’s future.  Another name for “Rational Optimization” is gaming the system.  Whatever you call it, the concept is basically the economic equivalent of gravity.

The concept refers to the economic force in which freedom and choice combine to create the least profitable response to a business’s offerings.  In terms of Social Security, the least profitable mix of customer means that some taxpayers are trying to contribute the least while at the same time some beneficiaries are trying to maximize what they collect.  While we may like the system as a whole, our individual interests are doing everything that they can to drive the system to insolvency.

Rational optimization has been around since the inception of Social Security.  What is not getting enough coverage is that these forces are getting stronger over time as beneficiaries have more resources with which to make claiming strategies more effective.

The Trustees Reports are based on historic norms that cannot reflect this evolution.  Historically, there was little way for someone to completely maximize their benefit levels from Social Security.  There are more than 2,000 rules which can determine benefit levels.  That is a lot of rules to maximize.

Retirees are not on our own anymore. The internet is greatly improving the odds in favor of retirees. Today retirees have a cottage industry of financial advisors that do nothing other than help retirees maximize their benefits.  These people know how to twist the thousands of rules in the system in favor of their clients.

Retirees are using these resources.  “Get What’s Yours”, a how-to book on maximizing your Social Security payout, reached #3 on Amazon’s best seller list last month. This isn’t “50 Shades of Grey”, but it is an example of people learning to game the system.

One example of this trend is the “File and Suspend” tactic enjoyed by married couples.  The Center for Retirement Research at Boston College says, “This strategy is equivalent to a “no interest” loan from Social Security and could potentially cost the program as much as $11 billion a year.”  This isn’t what people paid for.  It is a loophole that was created in 2000.

This is a trend that Social Security Administration should follow.  When the Trustees project the solvency of the Trust Fund, they use assumptions that are based on historic standards.  These historic measures will be progressively out-of-sync with actual benefit draws as retirees get better at gaming the system.

Here are the facts.  In 1984, Social Security was projected to be solvent for roughly 80 years, more than 2060.  Since that time, roughly 30 years of solvency have simply evaporated.  The projected exhaustion point of the Trust Fund is now to 2033.  The Congressional Budget Office even predicts 2030.

There are a couple of things that are clear. Retirees are trying to improve their return on their past Social Security contributions.  Any success that they have will come at the expense of the system’s solvency.

About the Author

Brenton Smith (A.K.A. Joe The Economist) writes nationally on the issue of Social Security reform with work appearing in Forbes,, MarketWatch,, and regional media like The Denver Post.