It seems like the rumors never stop flying: Social Security is going broke, they say, so you’d better start claiming benefits now because the program isn’t likely to be around much longer. Somebody in your circle of friends, probably your cousin’s next-door neighbor, always claims to have the inside scoop about how this benefit that is so vital to one-fifth of America’s population is about to fall apart and disappear.
Silence the Alarm Bells: Social Security is Fine for Now
Are those alarm bells and internet stories true? Fortunately, no – at least, the situation with Social Security is nowhere near as dire as these so-called experts claim. We base this statement on several articles we’ve read in recent months from sources we at AgingOptions consider reliable, including this one that came out a few weeks ago on the authoritative Kiplinger financial website. “Relax,” the article’s title says, “Your Social Security Benefits are Safe” – but, says the subtitle, “it’s still important for you to pace your claiming strategy in order to get the most money you can.” And that doesn’t mean Social Security is completely healthy: the system urgently needs a tune-up.
There have always been doomsday predictions about Social Security, but some of the recent barrage of negativity seems to have been set off by a rash of stories that came out a few months back – this one from CNBC is a good example – reporting that the balance in the Social Security trust fund is now beginning to go down as Uncle Sam has started dipping into the fund to pay current benefits. The Kiplinger article talks about this. “Recent reports that the Social Security trust fund will pay out more than it takes in—for the first time since 1982—could trigger a rush to claim benefits,” the article states. “Financial planners say that often their clients want to sign up for Social Security at age 62 (the earliest they can file) because they fear that the money won’t be there for them if they wait.” But that haste to file is based on fears that are for the most part unwarranted, and drawing benefits too soon, as we have often reported here on the AgingOptions blog, will generally prove to be a costly mistake. “The long-term outlook for Social Security may be cloudy,” Kiplinger says, “but this much is clear: Claiming early could do far more damage to your long-term financial security than anything that happens in Washington.”
Dipping Into the Trust Fund
This trust fund that helps pay for much of the cost of Social Security presently stands at about $3 trillion, says Kiplinger, but now that the balance is going down, it’s going to hit zero in 2034, according to projections. However, that depletion assumes that Congress will do nothing t0 plug the leak. “Even if that happens,” Kiplinger says, “Social Security benefits won’t disappear. There will still be enough money from payroll taxes to pay 79 percent of promised benefits.” But the odds that Congress will sit on its collective hands and do nothing over the next decade and half to fix the problem – even in our politically divided country – seem remote, for obvious reasons: “Any politician who will not vote to fully support Social Security will not win an election,” one expert told Kiplinger. The hope is that enlightened self-interest will force a divided Congress to act and make the adjustments needed to full fund this critical program that benefits more than 60 million Americans.
More Money In, Less Money Out
What are those adjustments? There are several possible solutions to the Social Security conundrum, each involving some combination of the program taking in more and paying out less per beneficiary. Social Security “is a fixable problem—as long as Congress intervenes before 2034,” says Dan Adcock, of the National Committee to Preserve Social Security and Medicare. “Obviously, every year you wait, you have to pay for a larger shortfall in the program.” In other words, according to the Kiplinger article and others, as with any course change the sooner Congress acts the less jarring the adjustments will have to be. Kiplinger lists four general categories of changes that are being discussed among policy-makers:
- Raising the full retirement age to 69 or 70 for future beneficiaries. Those born between 1943 and 1954 reach full benefit age at 66; for those born in 1960 or later the magic age is 67. Any changes would affect future retirees, not current ones.
- Gradually increasing the Social Security payroll tax from 6.2 to 7.4 percent.
- Raise the cap on the amount of income subject to the payroll tax beyond the current ceiling of $128,400.
- Revise how cost-of-living adjustments are calculated so that annual benefit increases will be smaller. This change would affect both current and future beneficiaries.
No doubt the debate in Congress will be fierce, especially as senior advocacy groups such as AARP continue to weigh in, and we’ll do our best to keep you apprised of proposals as they come forth. But the point we made at the beginning of this article bears repeating, and that is the danger in rushing to claim benefits too soon. Unless you really need the money or have serious health concerns, it is generally advisable to wait as long as possible (ideally to age 70) before you file. If you’ll contact us here at AgingOptions we can explain the benefits of a Financial Dashboard that will allow you to monitor your retirement finances at a glance and to see how all the pieces, including Social Security, fit together.
Putting it all Together
Speaking of the pieces fitting together, where are you in the process of retirement planning? Too many people focus all their attention on one thing – usually finances – and overlook all the other essential elements of a solid plan. Where will you live? Are your legal affairs in order? What will you do to cover medical expenses, especially long-term care costs? Will your family understand and support your wishes? The only retirement plan we know of that blends your financial, housing, legal, medical and family considerations together into one comprehensive strategy is a LifePlan from AgingOptions. We would love to tell you more about LifePlanning – and the best way to do that is to have you join Rajiv Nagaich at a free LifePlanning Seminar.
The first step: click here for our Live Events page and a complete calendar of upcoming seminar dates, times and locations. Then select the event of your choice and register. Remember, it’s free – but the information is priceless. Bring your questions and join us at a LifePlanning Seminar near you.
(originally reported at www.kiplinger.com)