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Social Security …Simple, Right?

by Rick Foster
social-security-cards-460x300There is a lot of confusion about Social Security today and the confusion is well deserved. For a married couple there are 81 different combinations on how and when to take benefits and when you add in some of the different strategies, the combinations can run into the hundreds. Almost one third of Americans choose to take their benefit early at age 62, partly because they have heard or believe that Social Security will soon run out of money. So let’s try and clear up a few myths and also talk about a few ways that could substantially increase the amount you receive. First, some history. Social Security was passed in 1935 to supplement older American’s retirement. It was referred to as an insurance policy, so to speak. The original “Full Retirement Age” to receive benefits was 65. However in 1937 when Social Security was implemented, the average life expectancy in America was less than 65. In 1937 for every one person that received benefits, there were 40 people paying into the system. Today, for every one person receiving benefits, there are only two people paying into the system. The problem is we are living much longer. Statistically the average male lives to 83 and the average female lives to 85. Those averages take into consideration all types of mortality. More and more people are living to 100. In 2010 there were 79,000 people celebrating their 100th birthday in America. So, will Social Security run out of money? Eventually if some changes aren’t made. The Social Security Trust Fund reports that Social Security is completely solvent through 2033. After 2033 they will only be able to pay out .75 of each dollar owed. The decision to take your benefit early is a big decision and should be weighed and not taken lightly. This decision could be the biggest financial decision you ever make. For example, if your full retirement age is 66 and you decide to turn on your benefit at 62, there will be a reduction of 25% from your benefit and that reduction will be for the rest of your life. If you take your benefit early and choose to keep working, and if you earn over $15,480 per year there will be another reduction. On the flip side, if you delay taking your benefit after your full retirement age, your benefit will increase by 8% each year through age 69 or 32% more. Mathematically then, everyone should wait till 70 to take their benefit, however not everyone can wait till 70. Delaying the benefit till age 70 will also increase the survivor benefit when the higher earning spouse passes away.

Tips:  A strategy to look into is called “File and suspend”. This strategy is especially helpful for a couple where one wants to retire at 66 but the other spouse wants to wait till 70 to get the additional benefit. If you are divorced and were married for at least 10 years then you are eligible to take a spousal benefit that is equivalent to 50% of your ex spouse’s benefit (and your ex will never know). If you are a widow or a widower and thinking about getting married again, you might want to wait till you are 60 so you will be eligible for your survivor benefit. So you see Social Security can be somewhat confusing and the good people at your local Social Security office are not allowed to give advice. So it’s up to you to know the rules.

Rick Foster is the President of Guardian Financial Management in Lewisville Texas

For more info call 972-996-7858

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