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 think there would be allot less people afraid of what might happen if our IDIOT president
would stop lying about SS so we'll pressure congress to pass his agenda.
It's no use. The United States of America is not the America we all knew in WWII. The Marxist in the White House changed all that. Happy with the change? Then you will all soon be even happier, when the whole country is Marxist-Socialist, & you can no longer buy a car, or a house, or borrow from non-existent banks, or get medical care with a three-year waiting time, or get any kind of break from your government if you are older than 65. Or get a job, or vote freely without fear, or let your kids go to public schools...or afford a college ed for your kids. Or save any money in any way. Or keep income taxes from going sky-high (75%). HOW DO YOU LIKE CHANGE NOW? Or own a gun of any kind. Or stop our government from caving in to the United Nations.
Or go to the church of your choice -- there won't be any churches to go to. Or stop the unions, or the homosexuals, or the illegal aliens, from marching onward to victory over everything you used to love. Or buy gasoline -- we will stop drilling for oil. Or get the truth from any source -- newspapers, TV, any source. Sound good to you all of this? Then I guess you can't wait to vote next year for Obama (Der Fuehrer) or his henchmen.
There won't be any more Tea Party to win a victory for you. The Boston Tea Party will be dirty words. Your money will be worth about ten cents on the dollar. YOU WILL LOVE IT. You won't even have the NFL, (greed will end that) and you never cared about football anyway. Duh. "nuf said.
I Agree with Marvin Snyder.
Remember that SS was started under a democratic administration. No blame can be assigned to the Bush administration...SS was started a long time ago, just like the welfare entitlement system. It was started by people who want the government to control things. The government is not good at making their budget balance.
If you all want jobs then you had better quit trying to take money from the wealthy who provide jobs for the rest of the people.
Government 'ponssi schemes' have there problems too.
Just ask B. Madoff he is in jail for doing the same thing.
Let 'we the people' keep the our S.S. tax income.
'We the people' are more responsible with our futures
and do not need the government to be involved.
Just give our money back and leave us alone.
The only ponzi scheme is the rich and their government goons taking from the common people over and over again to fill their pockets with greed, money, and power.
Does this writer have a clue?
Social Security is solvent for decades to come, and the glass is three-quarters full even after that - spoken like someone who's going to get the full glass (Baby Boomer or older). If I fill the glass full, I expect to get the full glass back - three quarters does not cut it for Gen Xers or younger.
Work lots of overtime while you are young. - Uh, salary positions don't pay overtime. But even if you are in an hourly job, it's still a waste of one's youth, and you only get one of those.
The so called experts cited in this article know nothing, are totally discredited, as are some of the posts here. People need to read up on history. Quit watching Fox, Tabitna. Blame Obama for the sunrise, the sunset, if it rains, if he awakes, blame Obams for the debt, your pension or lack thereof, blame Obama for school lunches, for immigration, for plane fares, for Casey Anthony trial, for Newscorp scandal in England, Blame Obama if your father didn't raise you, if he did, blame Obama for black farmers, blame Obama for Muslims, for Christianity, etc ad infinitum.
If you think people want to wait and work until they are 70 before filing for SS, you are crazy as a loon. Prob many people posting are unemployed or retired and on one of the many SS programs. The govt should be forbidden to borrow from the trust funds.
SS can be fixed, but politicians are too stupid to know how, and don't have the guts to fix it, all they want if a yes vote in next election
The "glass is three quarters full" huh? I don't think so. Remember when our elected officials were telling us that Social Security was in a separate account (a "lockbox") and would only be used for its intended purpose? Well guess what? That money was used for all sorts of things and its only a matter of time before they will have to tell us (or threaten us as in the case of our POTUS) that drastic measures must now be taken.
By the way, we have performed over 50,000,000 abortions since 1973. It takes a minimum of 2.1 children per family to even sustain a nation. The U.S. is right at the 2.1 number but only because of the Hispanic population larger families. The problem is most of our children now grow up depending on government handouts, not putting anything back into the system.
Folks, our Federal Government is functioning more and more according to the principles of socialism, not free enterprise. We have a President and many in Congress who are socialists in practice, if not ideology. And socialism is only a precursor to communism.
Perhaps we need to quit thumbing our noses at God and turn back to Him.
The problem is not 26 years from now, it is now. SS is running in the red now, or close to now. This means that to cover expected costs more money will be required--it can come from various sources, like income taxes, or higher payrol taxes, or by cutting other spending, or by borrowing. Given our history I would say that borrowing is most likely the way voters will want to go. And why not? As a people we apparently do not think it is wrong to borrow from our unborn heirs so we can live beyond our means today.
Simply raising, or even eliminating, the income ceiling won't fix SS since Congress has no history of restraining benefits when extra cash is available to spend--they will just up the benefit package so older people, who vote more reliably, will get more money, or they will spend it on more "wonderful" federal projects. Our path out of this mess isn't easy, but it is clear. Let people own their own retirement account. Let people decide how long they want to work (don't incentivize retirement). Let people suffer the consequences for their own actions rather than shift that burden off to people not yet conceived.
A way to guarantee SS, Medicare, Medicade, reduce taxes & fix national health insurance:
- Reduce FICA to 5% on both employees & employers
- Eliminate the $100k/yr ceiling on FICA taxes, ie apply FICA to 100% of EVERYONES income
- Institute Medicare Part E...Part E would be Medicare for EVERY citizen, not just those over 65.
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