It has never been more important to have an objective review of one’s social security retirement options prior to making the final decision on when to take benefits. For many, it will be the only source of guaranteed, inflation-protected, lifetime income during retirement. In addition, our generation is living longer, while many of us have a lost an extremely important retirement benefit that most of our parents had available to them – A Company Pension.
In 1983, almost 70% of companies offered lifetime pension benefits. Today that number is less than 20% and declining annually. The previous generation had three sources of retirement income – Pension, Social Security and Personal Savings. Today, most Baby Boomers must rely solely on Social Security and Personal Savings. In addition, our generation has not done a great job of saving. Thus we need to make sure that we are aware of all of the Social Security planning options that are available to us. Most people think that the only issue they need to consider is whether they should take benefits at age 62, 66 or 70. There are many other aspects that need to be addressed besides the age factor in order to try to maximize benefits.
Over the next year in this column, I will address many of these other planning options and techniques. Some of the issues that will be addressed are: When can I take benefits? When should I start benefits? How is my monthly benefit calculated? What is a spousal benefits and how is it calculated? What are survivor benefits? How can I maximize my lifetime benefit if I am single, if I am married, if I am divorced or if I am a widow or widower?
Today, I would like to address one common myth that people believe about Social Security. That Myth is that Social Security is going broke! Social Security is administered through the OASDI [Old Age, Survivor and Disability Insurance ] Trust Fund. According to the Trustee report for 2013, there are enough tax revenues and projected interest to pay 100% of benefits from now through 2019. From 2020 through 2033, there is enough principal, interest and tax revenue to pay 100% of benefits. After 2033 and through 2088, there is projected to be enough revenue, interest and principal to pay 75% of stated benefits. Therefore, the fund is not going broke, but will be limited under the current format.
Some of the proposed ideas to fix this shortfall are: increase payroll taxes, reduce promised benefits, and increase the retirement age from 67 to 70. A combination of these should help ease the burden of the system, politics notwithstanding.
So check back in the next edition as we start looking at different planning techniques that you may want to consider to maximize your lifetime Social Security Retirement benefits.
Vincent J. Catania, CFP®, MBA
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