Social Security
Is it secure??
Recently I attended a Social Security workshop. I am not ready yet but I wanted information on how to maximize the benefits and I think we all need to know more about this.
We hear the debate on Social security…when should we take it, who should get it, will it be there when I am ready?
By now you know I always like to start at the beginning…how did this start? What exactly is it? So let’s start there:
The Social Security Administration website has a “brief history” and this concept dates back to ancient Greeks and Medieval Europe. (https://www.ssa.gov/history/briefhistory3.html) For this purpose, I will just cut to the idea we know today:
President Franklin D. Roosevelt signed the Social Security Act into law in 1935, recovering from the Great Depression. Initially to help those who lost everything to have a “savings” plan/insurance to help them in later years. It has been amended over the years to cover families, dependents and survivors; and as an insurance for those who are injured/sick and can no longer work. Some may say it has been amended so much that it is not working/won’t be around for all of those who are paying into it. I am certainly not here to debate the merits or issues but just to give information on how to use it as best we can now.
What exactly is it/How does it work? Well, it is basically a public insurance program funded by payroll taxes. The employee AND the employer each pay 6.2% on earnings (up to $184,500) into this insurance account (if you are self employed you pay the entire 12.4%)…current workforce is paying for current beneficiaries of the program. Every time my mom got her money I would tell her to thank me! She just rolled her eyes and said she did plenty of work for that money…I think she was implying that I owed her at least that much. She was probably right.
Anyway. The idea for most of us (I will also not deep dive into the disability purpose of social security. That is a separate issue and I am focused on the retirement aspect for this article) is that at a certain age we will stop working (HA!) and collect the social security as a means to help us pay for our later years. Since we are living longer you don’t want this to be your only retirement plan! My friend and I “joke” that our retirement plan is death but most days that does not feel like a joke. The point is that social security is a part of your retirement plan but if you are relying solely on that it may not be as “secure” as it once was.
The first question is when do I start collecting? This is up to you and your financial advisor, but the bottom line is that the Full Retirement Age is currently 67. You CAN start collecting between ages 62-70. If you begin collecting before age 67 your benefits will be reduced for every month before age 67. This reduction is PERMANENT. It does not increase once you reach age 67. On the flip side, if you continue working to age 70 (or anything above 67) you will get a slightly larger amount to collect (because you have continued to put into the pot longer).
How is it determined how much I will collect? The calculation for your amount is a (fairly complex) calculation involving a 3 step process: (You can look up your own account on the SSA website and it will give you an estimate of your benefits at retirement age 62, 67 and 70 - just to give you an idea of the differences)
Calculate the Average Indexed Monthly Earnings (AIME)
Calculate your Primary Insurance Amount (PIA)
Calculate Age Adjustments (the decreases or increases I described above based upon the age you are when you apply).
Also, remember, things vary if you are married or single. Ask your questions based upon marital status…and what if that changes.
Can I work and collection Social Security? Since Social Security is NOT going to keep you in some luxury lifestyle you may want to keep working, at least part time. Not to mention, some may feel boredom or want to remain active (physically and mentally) in the work place in some capacity. This could be a complex question to discuss with any financial advisor you have, most especially a tax advisor. You CAN work while collecting social security but before the full retirement age, if you earn a certain amount of money it will trigger a change in tax status. After full retirement age you can make as much as you want and it does not change your tax status (AGAIN, ask your OWN tax advisor!). I was talking to a neighbor recently and she is doing just this. She is still working full time but is collecting her SS Benefits. She is paying off bills and socking the SS money away in her own investment accounts because this makes her feel better that she is getting this money while it is available, she may be earning some money on the investments herself AND she knows she has access to it as she needs it (and she did due to a recent health scare and this made her feel better that she had the extra money).
There are actually several helpful planning pages on the SSA website, including estimates of collections to help you decide what age to start. Remember, this is a government website so some of it seems more confusing than it needs to be too! https://www.ssa.gov/retirement/plan-for-retirement.
The bottom line is, while social security may be changing (and it needs to change some) there are ways to maximize those benefits for yourself and your security. Always speak to your advisors (accountants, financial advisors who know your situation, tax advisors (strategists NOT preparers!!) and lawyers. You do not need to be a millionaire to have these folks guide you, but they sure help to make you a millionaire!
What has been your social security experience? Please share if you would like to!