Social Security

More and more baby boomers are entering retirement and with that time of life comes the concern about how they continue to pay the bills once they stop working. One of the topics that often comes up in retirement conversations is Social Security. For most people, Social Security is something they haven’t spent much time understanding prior to getting to the point of claiming it in retirement. We want to take some time today and hit a few of the frequently asked questions in regards to Social Security.

The following recording is from “Mornings with Kelli and Steve” on Moody Radio Indiana (97.9 FM).  For more information on Moody Radio, go to moodyradio.org/indiana.

With the fear of Social Security running out of money in the future, should individuals be worried about whether or not they’ll actually receive the benefits they’re expecting?

Fear and greed rarely help us make wise decisions, so we want to try to move from being emotional to being informed.  According to the latest information released by the Social Security Trustees, the fund reserves are expected to run out in 2035.  This means that after that date, there will no longer be savings to help pay out the retiree benefits and any future benefits will come only from tax revenue received.

The current estimate is that tax revenue alone will pay about 75% of retiree benefits once the trust fund is depleted.  However, minor changes can be made between now and then that will allow Social Security to continue to pay out full benefits for much longer.  A few of those possible changes are:

• Increasing the tax rate.
• Increasing the Social Security wage base (currently $132,900) so high-income earners pay more into the system. They have already starting doing this.
• Raise the retirement age for younger people to delay their benefits.

As with most political financial solutions, none will be popular among voters, so they’ll probably delay major changes until they’re forced to do something.  In the meantime, individuals should consider trying to save more for their own retirement, so they are less dependent on the Social Security system.

What are the pros and cons of electing to receive Social Security retirement benefits as early as possible?

When to take Social Security is a very individualized decision, so make sure you research how it can best meet your needs.  The earliest you can elect to take social security retirement benefits is at age 62.

Pros

• A person may need the income to survive and can’t wait until they reach their full retirement age.
• There could be a medical condition that leads the person to believe they have a shorter than average life expectancy.

Cons

• Your monthly benefit amount is reduced for every month you take it before your full retirement age. If you start taking at age 62, that reduction could be as much as 30 percent.
• If you’re working, you may have reduced benefits – If you are under full retirement age for the entire year, they deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2019, that limit is $17,640.
• If you survive well into your 80s or 90s, the decreased monthly benefit could increase the likelihood of depleting your savings.

What about delaying Social Security benefits beyond the full retirement age of 66 or 67?

You can continue to delay taking your benefit and receive what are known as delayed retirement credits for each month you delay.

Pros

• For each year you delay, up to age 70, your benefit will increase by about 8%.
• If you are the higher earner, and you delay starting your retirement benefit, it will result in a higher monthly benefit for the rest of your life and usually for your spouse’s life as well.
• Delaying Social Security lowers the likelihood of depleting your financial assets, which is one of the largest concerns for retirees.

Cons

• You miss out on the extra income in the early years.
• You may pass away at an early age and not receive as much in your lifetime. However, this is not a financial concern for most retirees, so I wouldn’t put too much weight on it.

In a situation where one spouse didn’t work outside the home, is that spouse still eligible for a retirement benefit from Social Security?

Spousal Benefit – In many cases, a non-working spouse is able to qualify for spousal retirement benefits of up to half of the retirement benefit of their working spouse.  However, it is reduced if you start taking the benefit before your full retirement age.

Spousal Benefit (in divorce) – In the case of divorce, you may still be eligible for spousal benefits if you were married for more than 10 years, you remain unmarried and your ex-spouse is eligible for benefits.  This is only beneficial if the spousal amount is greater than any benefit based on your own earnings.

What happens if your spouse passes away?

Survivors Benefit – Upon the death of a spouse, the survivor can usually elect to take the greater of their benefit or that of their spouse.  This is one reason why the higher wage earner should consider delaying benefits as long as possible since that amount will be paid for both their life and the life of a surviving spouse.

For more information, check with a local Social Security Administration office or go to https://www.ssa.gov/

Brad Graber, CFP® has been working with clients on personal financial planning and investment issues since 1996. He invests his time mentoring and educating individuals on ways to be better stewards of the resources God has entrusted to them.