Another good year keeps the Social Security system on life support

Contrary to popular belief, the Social Security System actually makes money….sometimes. The only things the trust fund assets are allowed to invest in is treasury securities which they refer to as “interest bearing special issue” bonds. So when interest rates go down, the value of these bonds and notes go up therefore raising the value of the Social Security trust fund. It has happened fairly often in the 10 years or so which typically adds more time to the D-Day moment of when the benefits may have to lowered without some kind of legislative intervention. If the “special issue” bonds go up in value, it generally means the system can stay solvent for another year.

The Social Security Administration comes out with their annual report every year around this time and according to the newest report the above mentioned is exactly what’s happened. They give the prognosis for the program for the next 10 years and the next 75 years using a host of different economic numbers and stats like wage growth, population, mortality and immigration to try to get a handle on how many future claimants there will be.

The harbinger of bad things to come is what’s they call the “net-cash outflows” which means after everything that comes in and costs are taken out, the administration had to dip into the trust fund reserves to cover the shortfall. Recently they’ve been warning that this could happen but at the end of 2018, 3 billion of unexpected income made it profitable.

For 2019, the margin was a little slimmer. At the beginning of 2019, the total was $2,895,174, 945,000(almost 2.9 trillion) and it ended the year at $2, 897, 492, 826, 000 — $2.3 billion higher. So the system didn’t have to dip into reserves to cover the 64 million checks it issues to it’s recipients. However as positive as that is, it was the lowest gain since 1982. What about 2020?

Well I ‘m glad you asked. The Administration’s projections for 2020 not so rosy. A lot of people blame Social Security’s woes on the baby boomers but they might be just part of the problem. Here are some other contributors:

1) People are living longer. The system was never meant to pay people for 20 yrs after retirement. More 80 yrs olds out there than ever.

2) Immigration is down. Usually the people who are immigrants are typically younger and will pay into the system longer ergo supporting more of the older recipients.

3) Birth rates are down. People are not having as many babies as they did in the past. Younger workers pay into it and the older workers’ payments stay funded.

4) More high earners collecting more. These beneficiaries are getting a higher payout than the system has ever paid. And they usually live longer.

There’s a Connecticut democrat named John Larson who introduced legislation that would raise the payroll taxes from 6.2 % to 7.4% and added other rules about any beneficiary with income under $49,000 would not have to report their Social Security income. That was back in 2013– there’s been calls to vote on whether to vote on it(yes that’s really how it works in Congress) to no avail. Social Security has been a 3rd rail for politicians but with the upcoming shortfalls acting sooner than later would be advisable.

That’s all for now. More to come in this brave new decade.

January 16, 2020 0

Why should you delay taking your Social Security benefits?

Many people can plan to take their retirement stipend in their 60’s but if you put it off until you are 70, you receive “delayed credits” insofar that your benefit grows at 8% simple interest over the years that you wait to apply for the monthly check. There are many reasons to not take your Social Security benefit early or even at your full retirement age or FRA as the government refers to it and use these upgrades to your advantage. ALL of them are personal and only can be germaine to you and your life.

One of the first reasons could be you just don’t need the income. what if you continue to work into retirement. My client Joan supervises a team of visiting nurses. She’s phenomenal at it and is very recognized as a star in her field by many. She called the other day and said, ” Hey remember that income idea we talked about the other day? I just got a new job so I don’t need the money now.” Joan is 83. Just got a new job. Seems crazy but she keeps right on rolling and apparently is in demand. She took her benefit at age 70 because she had to. Maybe you’re Joan.

Another reason is perhaps you feel as though you haven’t saved enough for retirement –very common fear right now. If you are 67 yrs old and you will receive $2000 per month if you wait until 70 and get the delayed credits, you can increase your annual amount by $5, 760. Not a huge windfall but every little bit helps. They say 64% of the American public has less than $10k saved for retirement; this could be very tough for a lot of people as their lifestyle would change pretty heavily after the paychecks stop.

If you are one of those people who feel as though you may not have saved enough for retirement, do not despair. Obviously you can’t go back and get a do-over however if you were to get a job at a hospital, college, or a company that has a defined benefit plan also called a pension plan, that would help you immensely. Let’s say you work at one of those places for 5 or 6 years; they would have to pay you something in your retirement. Let’s say it’s $1000 per month– 12K per yr. How much of a lump sum would you have to save to generate that much interest? $250,000 at 5% would do it. Is it easy to save up $250,000? Not hardly right? There is a more likely chance of a pterodactyl landing in the parking lot than you finding one of these. So you really need to be diligent. Coca Cola, Liberty Mutual and others still offer a plan like this one. Usually older companies would still have this benefit. It’s a financial home run to get this if you can.

Thirdly if you have longevity in your immediate family- are you parents still alive? Who do you take after physically? Do you smoke, have steak and eggs for breakfast and a pint of whiskey every night? Maybe your pharmacist knows you by first name? These may be signs that longevity is not in the cards for you. If you are healthy and expect to live into your 80’s then waiting would be a good idea. If you take it early at 62 and if you added up all the payments and you died at age 75-77, you probably picked the right option- meaning you would have collected more if you took it at 66.

If you took it at 66 or FRA, and you die at age 83-84, the aggregate payments would be more even if you had waited to age 70. While your monthly payments would be higher initially at 70, the totals would not be as much if you took it early because of your unfortunate demise at 84.

If you take it at 70 and live past 84-85, then the payments start high and your longevity makes the totals higher than all other options regardless as to how long you’ve been collecting. If you go to the gym a lot, riding your bicycle or walking, eating right, etc maybe waiting is the right idea for you. if you find these numbers/concepts confusing then find a financial professional to break this all down. We have very robust software that enables us to handle all the algebra easily in a very understandable way.

That’s enough for now. I will continue to fill this new year with more Social Security fun for all the gentle readers out there.

January 10, 2020 0

What are the 3 most crucial things you should do BEFORE you take your Social Security benefit?

What do they say…a pound of prevention is worth 100 pounds of cure? Sound advice I’d say. This old axiom goes a long way with regard to Social Security. Some simple planning looking forward to what could happen is very important. Remember this is a lifetime benefit so you want to get it right.

Number one– Retiring without considering how that effects your benefits. What happens if you don’t have enough quarters paid into the system? Your check is going to be less. At age 62 they will look at your top 35 years that you’ve paid into the program; they call it your AIME or average indexed monthly earnings. Does the government like to abbreviate things? Yeah just a little bit. If you haven’t paid in for 35–doesn’t have to be consecutive- then you can get a zero for the years in which there were no payments. This brings the average down in a most punitive way costing you potentially many thousands in income. If you don’t pay in 10 years or 40 quarters then you don’t get any retirement benefits at all from Social Security. Ouch! Even if you’ve paid in the whole 35 years what if there’s some years that are lower amounts like when you were 22 and worked at Dairy Queen? Could those numbers be easily replaced even with a part time job in this day and age? Most certainly they could and that would make your benefit higher.

Number 2 — The government is always right aren’t they? How about NOT! Can they make mistakes? Of course they can because the US government is made up of people and people aren’t perfect and they do screw up sometimes. So is it possible they can make a mistake on calculating or reporting your earnings record that’s considered for your Social Security payments? Of course it’s very possible. So go to the website and get your statement. They will proof you vigorously during this process which is good. Then take a look at the 3rd page. This is your earnings record. Sit down, get a drink, some place quiet preferably and really think about what you were doing for a job in 1994 or 1988. Try to go back in your mind and remember what you got paid etc. Are the numbers right? If they aren’t the onus is on you to change them…old w2’s or old 1099’s etc. and old tax returns. These numbers reflect what you paid in and can ABSOLUTELY effect your monthly check so they must be corrected if they are wrong.

Number 3 — Make sure to take advantage of spousal benefits if possible. If you take you benefits early for example at age 62 your reduction in benefits is 75% and if you were born after 1960 the reduction is 70% but if you wait until your full retirement age which is 66 yrs old if you were born before 1960 and 67 after which your benefit check would be higher. If you wait until your are 70 the amount grows at 8% simple interest –these are called delayed credits– which would lead to a higher income in your golden years.

You can however if you plan ahead of time with your spouse by coordinating benefits, the lower earning spouse could take benefits early so there’s a least one check coming into the house while a higher earning spouse lets their benefits build up with delayed credits and then the spouse that filed earlier can switch over. When they switch over to the higher spousal benefit, it’s half of whatever the amount was at the higher earning spouse’s full retirement age as the delayed credits are not eligible for the spousal benefit. When the higher earning spouse takes their benefit and the lower earning spouse switches to the higher check, its a nice pay raise for everyone. A very happy 70th birthday indeed!

If you have never been married then just skip this section as you aren’t eligible for any of it. However if you are divorced, then a version of the same aforementioned benefits can be filed for by you. If you were married for at least 10 years, then you can get spousal benefits. This will not reduce your ex’s check in any way nor will it reduce the checks of their other ex’s or their current spouse. Moreover they will never know you’re doing it either unless you tell them. You both have to be 62 or older and if you’ve been divorce for over 2 years you don’t have to wait for them to file individually. If you were separated and not divorced, that time would count toward your eligibility as its the date on the decree that counts here. But you must remember if you get married again, you will lose these benefits. How does the old saying go “First time for love, second time for money.” Important words to live by.

October 7, 2019 0