7/18/2011 6:09 PM ET|
The coming Social Security shortfall
Social Security is facing long-term shortfalls, so future beneficiaries need to prepare early to maximize their benefits. And current recipients need to protect what they're getting now.
Forget for the moment whether there's the political will to tackle the financial problems affecting Social Security and Medicare as outlined in the respective trustees' reports. There's a more practical issue at hand, especially for those for whom Social Security and Medicare represent a part, big or small, of their retirement security plan.
Social Security currently runs a surplus, but that trend is expect to reverse, and by 2037, its Trust Fund is projected to be exhausted. At that point, current benefit levels would exceed the revenue replenishing the system, creating a growing shortfall. Medicare faces a similar fate in 2024. So what should current and future Social Security beneficiaries do to maximize or protect their benefits?
Don't act rashly
First and foremost, don't let media coverage scare you into rash action, said Andy Landis, a principal with Thinking Retirement and the author of "Social Security: The Inside Story." "I've spoken with some pre-retirees who say something like, 'I'd better sign up for Social Security now, before they reduce the payments. They can't reduce mine once I sign up.' That's not sound planning."
First, Social Security typically changes very slowly, with reforms announced for years and then phased in over more years, said Landis. For example, today's talk of possible Social Security cuts is generally aimed at those under 50 or 55. Second, by taking Social Security too early, you're guaranteeing yourself a pay cut for life. Stick with the plan, especially if you planned to wait for higher payments at a higher age.
Others share that point of view. The good news for current beneficiaries is that they would not be affected by any changes. "The changes will most likely be prospective," said Craig Copeland, Ph.D., a senior research associate at the Employee Benefit Research Institute.
And don't worry too much, either
Landis also advises against buying into any media-created Social Security "crisis." "Social Security is solvent for decades to come, and the glass is three-quarters full even after that," Landis said. "How many programs, public or private, can say that with confidence? Can you name one private company that can say the same?"
Others are in the same camp. "I do not think the trustees report is of particular importance," said Matthew Greenwald, president of Matthew Greenwald & Associates. "The Social Security system has some financial pressures that are not that difficult to address. It could be some affluent retirees will get less and/or that affluent workers will pay more, but these will be at the margins. Overall, I think people can and should count on the Social Security system acting basically as it does under currently enacted law."
And, Nancy Altman, co-chair of the Strengthen Social Security Campaign and chair of the Pension Rights Center, said this: "With respect to whether the benefits will be there, it is important to understand that Social Security is currently in surplus and is projected to remain so for more than another decade, even with no congressional action whatsoever. Its projected shortfall over its conservative 75-year valuation period is a manageable 0.6% of GDP. . . . The question of how large the benefits should be and how to finance them are political questions, not economic ones. All past Congresses have ensured that benefits were always paid on time, and there is no reason to think future Congresses will be less responsible."
Sure, Social Security faces long-term shortfalls, Landis said. "But the numbers we're seeing now have been expected since the mid-1980s," he noted. "It was always expected that Social Security financing, overhauled in 1983, would get us partway through baby boomer retirements in the 2030s. Later generations would decide how to steer Social Security after that. It's sort of like your next birthday -- it's hardly a surprise because you could see it coming."
Then again, face the facts
It is a reasonably safe bet that the Social Security program will be with us for a long time to come, but federal budgetary conditions may ultimately require some downward adjustments in benefits for high earners and/or increases in the retirement age, said Eric Toder, co-director of the Urban Institute's Tax Policy Center.
Given that, future beneficiaries who will likely face some sort of reform should consider, if nothing else, how to maximize their benefits under the current law of the land.
The most effective method for maximizing benefits is to continue to work as long as possible, said Copeland. "Given the actuarial adjustment of delaying retirement past age 62 and the normal retirement age, continuing to work and delaying benefit claiming would do the most to maximize one's benefit," he said.
Others, including Kent Smetters, an associate professor at the Wharton School at the University of Pennsylvania and the founder of Veritat Advisors, said Americans should work at least to their full retirement age, if not to age 70.
And Dallas Salisbury, the president and CEO of the Employee Benefit Research Institute, said, "I would tell anyone who can wait to take Social Security until 70 to do so. I tell people to assume they will get between 75% and 100% of the promised benefit. To try to build a plan that works with the 75% and view any more as gravy."
For her part, Anna Rappaport, president of Anna Rappaport Consulting, said it would be wise to keep your skills up to date and be prepared to work longer. "And be sure to have disability insurance in case you need it," she said.
Meanwhile, Bob Jennings, author of "Understanding Social Security and Medicare: Practical Answers and Planning in an Easy to Read Format," offered this advice for future beneficiaries. "There are two things to remember about Social Security benefits," he said. "First, your personal benefit is based on your highest 35 years of earnings during your lifetime. And second, if you have been married to anyone for at least 10 years, you qualify to get half of their benefit if it is higher than your own."
With that in mind, here are some simple actions Jennings advises to maximize your benefit:
- Travel around if you want after college, but start earning some decent income within five years, because you have only 35 years to build the benefit.
- Work lots of overtime while you are young. These early-life years will be adjusted for a wage index -- inflation -- when you retire and give you a potentially much greater monthly check.
- Watch the timing of bonuses. "You get no credit for earnings over the FICA limit ($106,800 for 2011), so if you are at or above that number this year and expecting a bonus, you might want to defer it to next year to get a better earnings report next year," he said.
- If all else fails, marry well and stay married for at least 10 years.
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I am 68 and I have been paying in maximum since I got out of the navy I had (WHOLE) life insurance that cost me plenty, @ age 62 my policy was suppose to pay me 1.5 million at age 61 I was contacted by NY & Florida courts that my policy was gone and they are looking for some scumball named @%$#@^^ weise, What good doe's it do to plan when they let these scabs to society get away with stealing from everyone, SS is all I have now and since Obama has been in office there has been NO increase in SS and medicare has been cut to 70% and medic gap insurance has increased $35. a month for my wife and myself and they say there is no inflation. I am getting tired of all these chickens (politicians) in the hen house clucking and squcking and not laying any eggs. It is time that congress have to live on SS and not there $millions of special interest money and the same medical that everybody else has to get by on!!!!! . We need to RECALL all these REPUBLACRATS & the PEA Party (woops TEA PARTY) and get everyday people in office NOT some polished politician who has been groomed to party politics and immoral life styles. NUFF SAID
This article is very misleading, ignorant and basically a piece of crap. Here are the facts for my situation regarding Social Security. I retired in January, 2011 at age 66 after working 45 years straight without missing a week of employment. I and my employers contributed the maximum payment amount possible for each year into the Social Security "Trust Fund". The total amount contributed at my retirement was approximately $275,000.00 .
Running the payment figures through a sophisticated Social Security calculator starting 45 years ago and calculating the exact payments made into the trust fund on a monthly interval through 540 months ( 45 years x 12 months) with an interest rate conservatively set at a constant 3.50% APY, my account would have had in January , 2011 approximately $ 601,000.00 .
In essence I prepaid my Social Security in full ( and then alot more) before I retired and it is still earning interest. They still have my own money and now everyone seems to be saying that SS is a Ponzi scheme, that seniors are getting way more out of it than they put into it, etc. You get the feeling that the government wants you to die before you start collecting.. Hence the push by them to put retirement until age 70 . Since the average death for a recipient today is 78 years old, they would have to pay benefits on the average for only 8-9 years.
Right now I receive approximately $2,425.00/ month from Social Security. If I could convert, an annuity from NY Life at age 66 today for the amount listed above would give around $3,250.00/month for life with alot more security than I would receive from our Government.
Folks, put the blame where it should be. Put it on ourselves, we have allowed this to happen when we sat back in front of our TVs and let others carry the ball. Cut back on all the bull, get out of Afghanistan and Iraq. Let them kill each other off, the way they have been doing for years. Do away with foreign aid and all absolutely unnecessary pork projects. Let's worry about our own hungry children. Take the money and put it where it will do some good. Vote the bitches out. Put people in government that are for the US of A, and not lining their own pockets at the expense of the working class and the poor in this country. As a retired soldier, I have been to many other countries that are poor because of corruption and the like. Most of our politicians are what? Lawyers with money. Money crooked from the poor and uneducated people of this land. Why would anyone vote for a lawyer to represent us in congress, the senate, the Whitehouse, and other areas of our government. Look at our war debt. What it is doing to our country and our poor. I have seen all the graft and corruption that takes place in war times. We sent millions of tons of supplies and materials to Vietnam. Much of it never got to our troops, instead falling in the hands of the very people we were sent there to fight against. "Wake Up America!"
"Let's not vote these crooks in and let's vote the crooks that are in....out!" We shook them up during the last election, let's keep it going. Get of your duffs, put down the remote, and take it to the streets and the polls. If we don't stop all the corruption and the like....who will? "Our children?"
Just some thoughts of an old retired soldier, someone that really cares about this country and our people.
"Just do it!"
Social Security was suppose to be a savings fund, not a SLUSH fund !!! Shortfall ? are you serious ? Its BANKRUPT !!! we have a PONZI scheme taking place !! If the current employees dont contribute into S.S. there is no money for SENIORS !!!! DEMAND AN AUDIT WHERE IS THAT MONEY ??????????????
Lets not forget the reason there will be a shortfall in the first place.
The source of the problem dates back almost 60 years. In 1954 President Eisenhower transferred funds from the, supposedly locked, SS Fund account and transferred it into the general fund in order to finance his highway jobs act that built the freeway system. Much, but not all, of that money was paid back.
Then President LB Johnson came up with a way to again loot the SS Fund as a permanent ongoing thing, to artificially boot the GDP and pay for his war in Vietnam.
From that day on the Federal government under every president has stolen all of the SS money and transferred it into the General Fund. There should be trillions of dollars in the fund today but due to the corruption at the top there are only IOUs.
Of course this isn't the only Federal lie. JFK changed the way unemployment is counted to only show new filings which is why the Feds say the unemployment is at 9% when it is really above 22%.
Every administration for the last 60 years under BOTH parties have used "creative book keeping" and outright lies to ignore the mounting debt and placate the American public by propping up the GDP and denying inflation.
Isn't it time we the people acted to end the lies and reclaim our country?
In 2012 a vote for ANY Republican OR Democrat is a vote against America! It is a vote for corruption and a vote for more debt and a weaker dollar. Ultimately it is a vote to make America a 3rd world country.
The Federal government no longer represents the will or the needs of the American people. It is owned by special interests and our politicians are bought and sold like hooker in a 3rd world bar.
It time for the American people to pull the plug or the machine that feeds our money and our future into the pockets of special interests.
I am 53 years old and have worked and paid in to SS for 37 years. Ronald Reagan has raised my retirement age once, Bill Clinton has allowed big companies to use a different bond rate to adjust (lower) my retirement benefit as has George W. and wall street has stolen half of my 401k.
When is big GOV. going to start working for the middle class wage earner that gets up and goes to work every day to keep the country going?
I have 33 years on my present job and at this rate I will have to work another 20 to afford a retirement!
They can't fund SS or Medicare but they have no problem funding BILLIONS in foreign aid to all but 2 countries in the world!!!!!
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