The excellent personal investment columnist Ron Lieber of The New York Times (and author of The Opposite of Spoiled) put it plainly, in a March column on our hand-holding guide: "The book's success is...symptomatic of something that we take for granted but should actually disgust us: The complexity of our financial lives is so extreme that we must painstakingly manage each and every aspect of it, from government programs to investing to loyalty programs."
Lieber went on: "every American should be profoundly embarrassed that we live in a nation where so many confused people feel like they have to read them all...This appears to be a distinctly American condition...our tax system and other arenas are ones where multiple constituencies lobby against decreased complexity and make their livings off everyone else's confusion."
And he quoted one of my co-authors, Larry Kotlikoff:
"There are democracies that don't have this craziness, where you get something for yourself by lobbying and hide it from everyone else...I think it's pernicious and disgraceful and an insult to the American public."
Pernicious? Disgraceful? Every American should be profoundly embarrassed?
Well, I suppose, if the back story of complexity were really just - or even primarily - a matter of lobbyists getting something for themselves and hiding it from everyone else. But, having now looked at the evolution of the Social Security system in some detail, I don't think that explains its complexity at all. Not even close. Nor do I think the complexity of Dodd-Frank or ObamaCare is due primarily to lobbyists making their living off confusion. I do agree with Ron Lieber that our legal complexities are "a distinctly American condition." But shouldn't that be a source of pride, not embarrassment? And that instead of being America's Achilles' heel, complexity should actually be considered a national strength - evidence, even, of the greatest strength we have?
This panegyric to complexity is actually born of my experience the last few years, trying to simplify our country's Social Security system and its 2728 rules. So before I elaborate my praise for a system pretty much everyone else seems to excoriate, let me share three simple rules for deciding when to take your benefits that my co-authors and I have gleaned from the complexities of Social Security:
Simple Rule 1) Be as patient as you can afford to be, given your income and health.
It's not always optimal to wait until 70 to take your personal benefit, but it is the vast majority of the time, given that your benefit rises by about eight percent annually, inflation-adjusted, for every year you defer. Social Security is insurance - insurance against outliving your savings. You insure against that catastrophe by locking in the higher possible lifetime benefit.
Yet less than two percent of Americans wait until 70. For those of you who take PAYMENTS early - because you think you can beat Social Security's payoff, or are relying on a break-even analysis -- please read chapter two of our book, or surf the web for our basic argument online. And for those who think Social Security is going broke, so they'd better take what they can as soon as they can, ask yourself this: if the US government were to renege on its Social Security promises, what would happen? An impeachment epidemic? Mass revolt? Yes, some day, taxes will have to be raised, benefits perhaps trimmed, RECIPIENTS means-tested. But probably not anytime soon. And not for anyone deciding now or in the near future whether to take benefits before age 70. On this Larry, our third co-author Phil Moeller and I all agree.
Simple rule 2) Be aware of, and know how to get, all the benefits to which you are entitled. (There are 10 different ones, last I counted.) The "spousal benefit" is the most valuable one of which people who are married, or once were for ten years or more, seem to be extravagantly unaware. Get What's Yours was born when Larry first shared the spousal benefit strategy with me.
Simple rule 3) Since you can't take more than one benefit at a time, stagger your benefits to get all of what's yours. Thus you can take a spousal benefit between your Full Retirement Age (currently 66) and 70, so long as your spouse or ex- has reached his or her Full Retirement Age.
Admittedly, the complexity means that there are too many ifs, ands and buts to lay out all the permutations here. And besides, I'm an economics popularizer (my role all these years at the PBS NewsHour), not a Social Security advisor. For the specifics, try our book, or co-author Larry Kotlikoff's software at maximizemysocialsecurity.com, which is widely acknowledged to be the best thing out there for doing the actual calculations.
But back to the main argument: that far from being a plague, complexity is devoutly to be wished, that it is indicative of what may be America's greatest strength in the world, our legal system: the web of rules that make most of the world want to emigrate here, our vaunted "rule of law."
Yes, the much-maligned Social Security Program Operations Manual System (POMS) does indeed have 2728 different rules, and countless pages to explain each. But as early as page seven, our book suggests why that might be. And I quote:
"One day, while Jerry [Lutz, the technical expert who vetted our book] still worked for Social Security, a claims representative approached him with a question. A new claimant's husband had died of a heart attack while they were having sex. Thehad been married for less than 9 months, the threshold for receiving survivor's benefits from Social Security. But one of the exceptions to the 9-month duration of marriage rule involves "accidental death."
Up until then, Jerry had considered "accidental" to mean something
like a car wreck. But his job was to research tough cases like this one.
So he searched the vast Social Security rule book and found POMS
GN 00305.105, which describes an accidental death in part as follows:
A "bodily injury" occurs whenever the outside force or cause affects
the body sufficiently to interfere with its normal function.
The cause of the bodily injury is:
"External" if it originated outside the body. An external force can include an injury suffered due to weather conditions or exertion.
NOTE: By exertion we mean an activity that involves at least
moderate effort for the average person.
Routine activities, e.g., standing, do not constitute exertion for purposes of finding accidental death. Circumstances which more readily lend themselves to a favorable finding of accidental death include:
• an unexpected heart attack occurs during moderate exertion;
• an unforeseen event negates the voluntary nature of an
activity, e.g., an exercise machine breaks down while exercising;
• some unintended, unexpected, and unforeseen result occurs
during exertion, e.g., a fall or slip while running; or
• a crisis or sudden peril requires strenuous exertion.
"Moderate exertion"? Arguably. "Unintended" and "unexpected"?
Indubitably. And so, based on the claimant's testimony and her husband's death certificate, widow's benefits were eventually conferred
but the determination (was) anything but simple."
Now I ask: Would you have it otherwise? Isn't this an example of our national retirement system trying to be as fair and careful as possible? The rule's complexity derives from the very nature of law itself: an ever-morphing set of rules that beget exceptions that beget more rules.
Why is the Talmud so complicated? Why is English common law so elaborate? Why the IRS code? The criminal code? The rules governing the sanctity of contracts? Look what happens when you have a supposedly simple rule, like the National Football League commissioner getting to decide penalties "in the interest of the game of football." Did anyone here read the Wells Report on the Tom Brady case? The American Enterprise Foundation's "Deflating Deflategate" analysis, except for possibly the New York Times op-ed that summarized its conclusions? How about Tom Brady's texts and emails? All of which happened in response to the "simple rule." And of course the case then went to court.
Yes, yes, I know, as Dick the butcher said in Shakespeare's Henry VI, envisioning utopia: "The first thing we do, let's kill all the lawyers." Four hundred years later it's a cliché: America is "overly litigious."
But mightn't our litigiousness be a function of our size, our pluralism, and most importantly, our profoundly rights-based traditions? Of course there are special interests represented by lobbyists -- "factions" they were called in the Federalist papers at the founding of the Republic. But isn't that the price we pay for liberty? As James Madison put it in the most famous paper, Federalist 10:
"Liberty is to faction what air is to fire, an element without which it instantly expires. But it could not be less folly to abolish liberty, which is essential to political life, because it nourishes faction, than it would be to wish the annihilation of air, which is essential to animal life, because it imparts to fire its destructive agency."
You want a simple Social Security system? Well, it started out simply enough. Let me quote from Wikipedia, including the footnotes:
"Most women and minorities were excluded from the benefits of unemployment insurance and old age pensions. Employment definitions reflected typical white male categories and patterns.[9] Job categories that were not covered by the act included workers in agricultural labor, domestic service, government employees, and many teachers, nurses, hospital employees, librarians, and social workers.[10] The act also denied coverage to individuals who worked intermittently.[11] These jobs were dominated by women and minorities. For example, women made up 90 percent of domestic labor in 1940 and two-thirds of all employed black women were in domestic service.[12] Exclusions exempted nearly half of the working population.[11] Nearly two-thirds of all African Americans in the labor force, 70 to 80 percent in some areas in the South, and just over half of all women employed were not covered by Social Security.[13][14] At the time, the NAACP protested the Social Security Act, describing it as "a sieve with holes just big enough for the majority of Negroes to fall through."[14]
Moreover, if you were still working after retirement age, you couldn't collect benefits at all. (Importantly, that is no longer true, though based on audience questions I've fielded in the half-year since our publication date, many Americans don't seem to know it.)
So the system adjusted, adapted, modified the rules and in the process, made Social Security inevitably more complex. Just two years after the Social Security Act came the Recession of 1937, even at the time blamed on the government having cut back on its New Deal largesse, as well as the austerity effects of the $2 billion that had been collected in Social Security taxes and were then sitting in a reserve fund - an actual "lock box," if you remember the 2000 presidential campaign.
So benefits were moved forward two years -- to 1940 instead of 1942 -- and the benefits increased for everyone eligible to receive them. Thus was introduced - more complexity. Family protection also became a priority, so the amendments of 1939 added wives, elderly widows, and dependent survivors of covered male workers. If a married wage-earning woman's own benefit was less than 50% of her husband's, she was now treated as a wife, not a worker, and got the 50%. Thus the birth of the spousal benefit...and of yet more complexity.
Next came a decade of debates about domestic labor, so household employees working at least two days a week for the same person were added in 1950 (not all of them reported, as we learned via "Nannygate" when Zoe Baird was nixed as Attorney General back in 1993, along with nonprofit workers and the self-employed. Hotel workers, laundry workers, all agricultural workers, and state and local government employees were added in 1954. More rules. More entries to the Program Operations Manual System, en route to the 2728 we have today.
In 1956, the tax contribution to social security was raised to 4 percent (2 percent for the employer, 2 percent for the employee) and disability benefits were added.
In 1961, retirement at age 62 was extended to men, and the tax rate was increased to 6 percent.
In 1962, the changing role of the female worker was acknowledged when benefits of covered women could be collected by dependent husbands, widowers, and children.
In the newly feminist '70's, survivor and spousal benefits were applied to men. (Ruth Bader Ginsburg was one of attorneys arguing for the end of anti-male sexism.)
And some of you will remember 1983, when Alan Greenspan, pre-"maestro," led a commission to rein in benefits by, among other reforms, extending the full retirement age to 67, gradually, for those born in 1960 or after.
I won't lose any sleep if you don't buy my argument, but at least it should be clear. You want fairness, nuance, adaptation to the changing mores of society? You make finer and finer distinctions. And that means greater complexity.
There's one more dynamic in a competitive market system like ours that adds to complexity: people are forever trying to push the envelope, test the rules, game the system. That's what Larry's hypothetical character in our book, William P. Gigolo, exemplifies. As result, Social Security plays the never-ending game of cat-and-mouse that is the fate of all regulators interpreting the rule book.
Can we simplify? I suppose. Co-author Larry Kotlikoff has his own so-called "Purple Plan," linked to in the next paragraph. It is well thought out. And few, if any, people on earth know more about the mechanics of the social security benefits system than Larry. He claims it's simplicity itself. Or as he put it in a column on our PBS Making Sen$e website recently:
"We don't need to keep the current system around for another day, let alone another 80 years. Were I in charge, I'd freeze it, pay off, over time, everything it now owes, and replace it with a modern version of Social Security that's fully funded, fair, simple, and efficient."
The problem is, I have heard promises like that in every government policy plan ever proposed. But I'm not skeptical just because I'm a journalist who has kicked around for decades. Many Americans have real reasons for preserving Social Security as it is. Many, in fact, want to improve it by addition, which would make the system more complex still.
The fact is, the policy status quo isn't just a function of bureaucrats protecting their turf, and civil service rules that reward fidelity over competence. Also a factor is the current anti-government bias stoked by conservatives, a bias which leads to bureaucracies like Social Security being understaffed and overmatched.
To recap: American government is a system of deliberate checks and balances that has proved, over two-plus centuries, remarkably adaptive. Complexity in the law - in basic fairness -- is no small reason for our success.
Do we prefer to be China, where the latest headlines, when I was there two weeks ago, were about lead poisoning in various newly built housing projects?
How about the Chinese stock market, so unregulated that the recent stock market bubble was due at least in part to investors buying stock, then using it as collateral on loans to buy more of the same stock?
One last point. Problems inevitably arise in dealing with the complexity that is America. But solutions do as well. Often they come from the private sector. Think Turbotax. Think all those books for "dummies." Or, in the case of navigating the maze that is America's Social Security system, think of a book like Get What's Yours.
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