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  • Writer's pictureChris Stein, CFP®

Social Security Analysis

This week’s post addresses a recent question from a radio show listener.  She wrote:  “My husband and I are both 53. He is already retired (not entirely by choice) and I plan to work at least another 7 years. Here’s my question- social security will be an important part of our planning, but it seems far enough off that things could probably change substantially before we are fully eligible. When is the right time to schedule a social security analysis with you? Is it too soon for us? What changes do you think are on the horizon?

More often than not we receive specific Social Security related claiming questions. This one however was unique in that it requires us to answer based on our opinions and assumptions, not necessarily facts and figures.

When Should You Complete a Social Security Analysis?

The simple answer to this part of her question is to complete a Social Security Analysis around the time that you are thinking about first filing. In general, (there are a few exceptions) the earliest a person can file for retirement benefits is at age 62, so you may want to consider completing a Social Security income analysis around that time.  As we have explained before, the calculations for determining your Primary Insurance Amount (or the amount of benefits you are eligible to receive at your Full Retirement Age) takes into consideration your annual earnings.  Although our software for optimizing a person’s Social Security benefit claiming strategy is quite robust, the overall calculation becomes less and less accurate the more years we have to project from your first claiming date. In addition, because your actual earnings in the years leading up to your first filing date are still unknown we would have to estimate your earnings in the years leading up to age 62. . This could lead to an under or over estimation in our software, and an incorrect calculation being presented to you.

Conversely, it often makes little sense to have us complete an analysis for you if you have been claiming your retirement benefits for more than a year. This is because after receiving your benefits for 12 months you are no longer eligible to withdraw your application. (Prior to a Social Security rule change in late 2010 you were allowed to withdraw your application for benefits up until age 70!) However, if you have a spouse or child who is eligible for benefits, they could benefit from having us run an analysis even after you have been claiming for one year.

What Changes Are On the Horizon For the Social Security System?

This part of our listener’s question requires more conjecture and opining from us than actual facts and figures!  Of course if we could predict the future and knew for certain what’s on the horizon for Social Security we wouldn’t be here! We would have picked the winning lottery numbers by now and retired to a secluded Caribbean Island!

Nonetheless, here are a few items to think about with respect to the future of Social Security :

Decreased Payments

By law the Social Security Administration cannot pay out more benefits than they take in from tax receipts.  So if Congress does not make changes to the Social Security system, it is estimated that in the mid 2030’s the current surplus in the Social Security Trust Fund will be diminished and overall payments will have to be decreased to about 78% of their current levels (adjusted for inflation).

But common sense tells us Congress will make changes to the system well before any indiscriminate, across the board benefit cuts take place. (Hmmmm, are the words “common sense” technically an oxymoron when used in conjunction with politicians and Congress?)  As troubling it is to rely on Congress to act, we do believe an across the board benefit cut seems unlikely. Existing retirees in their 60s, 70s and beyond who are already collecting their retirement benefits face little chance of experiencing a cut to their benefits.   Conversely, people younger than 50, especially those in their 30s and 40s, will most likely experience some type of meaningful change to their benefits.  All this leaves a big question mark for those of us in our 50s. We feel Congress could go either way for our demographic of American society. (Yes, I am in my 50s!)

Social Welfare

Another change likely to occur over the coming years will lead the Social Security system down a path from a social insurance program to one that is essentially a social welfare system.  Specifically, the threat by some in Congress to remove the salary limit subject to the Social Security FICA tax.

Fewer Claiming Strategies

Finally, Congress could rein in many of the claiming strategies we talk so much about in this blog.  In fact, in President Obama’s 2015 budget proposal, Social Security claiming strategies came under attack as being “unfair”. Don’t believe us? Well, this is taken verbatim from President Obama’s proposal: “the Budget proposes to eliminate aggressive Social Security claiming strategies, which allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits.”

For more on when to complete a Social Security optimization analysis, or for our opinion of future changes to your Social Security benefits, be sure to use the play button below to listen to the audio version of this blog post.

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