Category Archives: Social Security

Finding the Best Social Security Claiming Strategy – 3 Questions

My Comments: As you’ve heard me say many times, Social Security benefits have become an absolutely critical piece of the retirement income puzzle for most of us. If it’s not there to pay critical monthly bills, it’s there to allow us freedom of movement as we transition from the retirement go-go years to the slow-go years and ultimately the no-go years. What follows here are good insights for you.

Sean Williams | Nov 27, 2017

Here’s how you can get the most out of Social Security.

Many Americans will lean on Social Security pretty heavily during retirement. Data from the Social Security Administration finds that more than three out of five seniors currently rely on their benefits for at least half of their monthly income. Separately, a study from the Urban Institute estimates that an average-earning male ($47,800 in 2015 dollars) will net about $304,000 in lifetime benefits from Social Security if he turns 65 in 2020. That’s about $82,000 more in lifetime benefits than Medicare will provide for this same individual.

Yet in spite of the clear importance placed on Social Security income during retirement, deciding when is the best time to file for benefits is perhaps the greatest mystery for most workers.

Your retirement benefit from Social Security, assuming you’ve earned the prerequisite 40 lifetime work credits, is derived from four factors — three of which you can control. It’s based on your earnings history, length of work history, claiming age, and your birth year. This latter factor is what determines your full retirement age, or the age at which you’re entitled to receive 100% of your retirement benefit.

In its simplest form, if you sign up before your full retirement age, you’ll accept a permanent reduction in your payout of up to 30%, depending on your claiming age and birth year. Similarly, waiting until after your full retirement age to enroll could boost your payout by up to 32%, depending on your claiming age and birth year. You can begin receiving retired worker benefits at age 62, or any point thereafter, but be aware that your benefits grow by approximately 8% for each year you hold off on enrolling.

This is the dilemma that retired workers commonly face: Take the money now and accept a permanent reduction to your monthly payout, or wait and allow your benefit to grow.

Answering these questions will maximize your claiming strategy

The easiest way to figure out what the best Social Security claiming strategy will be for you is to answer the following three questions.

1. Am I in good health?

The first thing you’ll want to do is assess your long-term health outlook to the best of your ability. Admittedly, trying to guess our own expiration date is nothing any of us can do with accuracy. We can, however, factor in our own medical history, and that of our immediate family, to determine whether or not we’re in poor, good, or excellent health. Your overall health and longevity outlook will help determine whether claiming early, late, or somewhere in the middle makes sense.

People with chronic health conditions and/or those with immediate family members who haven’t reached the average U.S. life expectancy of 78.8 years, according to the Centers for Disease Control and Prevention, are often best served claiming benefits earlier. While waiting would boost your monthly payout, claiming early and immediately receiving a payout will usually maximize what you’ll receive over your lifetime.

Conversely, waiting until ages 68 to 70 and boosting your payout well above your full retirement age benefit can be worthwhile for seniors in excellent health who’ve had parents or grandparents live into their 80s, 90s, or even 100s. Waiting can produce a significantly higher lifetime payout by ages 85 and up.

If you’re in good, but not great, health, then claiming around your full retirement age might be a wise decision. Again, it’s something of a crap shoot, but the smartest thing to do is take the information we have about our health and apply it as best as possible to our claiming decision.

2. Will this claiming decision affect anyone other than me?

The second question you’ll want to answer to ensure you’re making the best Social Security claiming decision possible is: How will this claiming decision affect those around me?

For instance, if you’re an unmarried elderly individual with no dependents, then your claiming decision really is your own to make. What you do should affect you alone.

On the other hand, if you’re married, your claiming decision could have implications on your spouse. As an example, if you’re the higher-earning spouse and file for benefits before reaching full retirement age, and you wind up passing away before your lower-earning spouse, the maximum survivor benefit that your lower-earning spouse may be eligible for will be reduced.

Elderly couples should also work on coordinating claiming strategies to maximize what they receive while they’re alive. Higher-earning spouses often benefit by waiting until their full retirement age or later to sign up for Social Security. Letting this larger benefit appreciate makes sense given that it’ll have the biggest positive impact on the couples’ household income later in life. Meanwhile, couples can sometimes gain by having the lower-income spouse claim early in order to generate some income for the household while the larger benefit grows.

Long story short, understand how your claiming decision will affect those around you.

3. How reliant will I be on Social Security income?

Perhaps the most important question you’ll want to ask yourself is this: How reliant will you be on Social Security? Generally speaking, the more reliant you’ll be, the greater incentive you’ll have to wait before signing up.

One of the bigger mistakes made by enrollees is filing for benefits early if you have little or nothing saved for retirement. If your nest egg is practically nonexistent, then you’re probably going to lean very heavily on Social Security during your golden years. If this is the case, the last thing you’d want to do is file for benefits early and permanently reduce your monthly payout. Instead, you should be working during your 60s, assuming you’re in good enough health to do so, and allowing your wages to cover your living expenses. This way your Social Security payout can keep growing, thus allowing you to maximize your monthly payout.

How reliant should you be on Social Security? I believe the ultimate goal should be to have no reliance on Social Security income whatsoever. In other words, your ability to save and invest for the future allows your Social Security payout to be nothing more than icing on the cake. But for the average American, it’s designed to replace about 40% of working wages. As long as you have a primary source of income, and Social Security isn’t it, you’re doing something right and should be in decent shape during retirement.

If you take your health, your marital/dependent situation, and your expected reliance on Social Security income, into question when making your claiming decision, you’re liable to find the best claiming strategy for you.


10 Social Security Terms To Know And Understand

My Comments: Happy Thanksgiving everyone!

For those of you still not signed up and receiving monthly benefits, here’s some useful things to know.

For those of you who attended my Social Security workshops, you’ll recall the acronyms that appear on every page. There’s even a couple more here for you to learn.

Maurie Backman – The Motley Fool – Nov. 10, 2017

Social Security serves as a key source of income for countless retirees and disabled individuals.

It’s also an extremely complex program loaded with rules and terminology. If you’re attempting to learn about Social Security (which is something you should do, regardless of how old you happen to be), here are a few key terms you’ll need to understand.


OASDI stands for old age, survivors, and disability insurance, and in the context of your paycheck, it’s the tax used to fund the Social Security program. The current OASDI tax rate is 12.4%. If you work for an outside company, you’ll lose half that amount of your earnings up to a certain income limit, while your employer will pay the remaining 6.2%. If you’re self-employed, however, you’ll pay the full 12.4% up front.

2. SSI

SSI stands for supplemental security income, and it’s different from OASDI in that it’s a program funded by general tax revenues, not Social Security taxes. SSI is designed to help those who are over 65, blind, or disabled with limited financial resources keep up with their basic needs.

3. FICA Tax

FICA stands for the Federal Insurance Contributions Act. It’s the tax that’s withheld from your salary or self-employment income that funds both Social Security and Medicare. For the current year, FICA tax equals 15.3% of earned income up to $127,200 (12.4% for Social Security and 2.9% for Medicare), but those making above $127,200 will continue to pay 2.9% FICA tax on income exceeding that threshold. In 2018, the earnings cap will rise to $128,700.

4. Social Security credits

In order to collect Social Security benefits, you must earn enough credits during your working years. In 2017, you’ll receive one credit for every $1,300 in earnings, up to a maximum of four credits per year. For 2018, the value of a single credit will rise to $1,320 of earnings. Those born in 1929 or later need 40 credits to qualify for benefits in retirement.


AIME stands for average indexed monthly earnings, and it’s used to calculate your personal Social Security benefit. The amount you receive from Social Security is based on your highest 35 years of earnings. To arrive at your AIME, your past earnings are adjusted for inflation so that they don’t lose value.

6. Full retirement age

Your full retirement age, or FRA, is the age at which you’re eligible to collect your Social Security benefits in full. FRA is based on your year of birth, and for today’s older workers, it’s 66, 67, or 66 and a number of months. Though you’re allowed to claim benefits prior to reaching FRA (the earliest age is 62), doing so will cause you to collect a reduced benefit amount — permanently.

7. Delayed retirement credits

Though waiting until full retirement age will ensure that you collect your benefits in full, if you hold off on filing for Social Security past FRA, you’ll rack up delayed retirement credits that will boost your benefits. Specifically, for each year you wait, you’ll get an 8% increase in your payments. Delayed retirement credits stop accruing at age 70, so that’s typically considered the latest age to file for Social Security (even though you can technically wait even longer than that).

8. Trust Fund

The Social Security Trust Fund was established in the early 1980s to cover any future shortfalls the program might face. If Social Security has a year in which it collects more taxes than it needs to use, that money is placed in the Trust Fund and invested in special Treasury bonds. Once Social Security’s incoming tax revenue fails to cover its scheduled benefits, the Trust Fund will be tapped to make up the difference. Come 2034, however, the Trust Fund is expected to run out of money, at which time future recipients might face a reduction in benefits.


No, we’re not talking about a soft drink. In the context of Social Security, it stands for cost-of-living adjustment, and it’s designed to help beneficiaries retain their purchasing power in the face of inflation. Back in the day, those who collected Social Security received the same benefit amount year after year. But beginning in 1975, beneficiaries have been eligible for automatic COLAs based heavily on fluctuations in the Consumer Price Index. COLAs are not guaranteed, however. If consumer prices don’t climb in a given year, benefits can remain stagnant. Such was the case as recently as 2016.

10. Survivors benefits

Survivors benefits are designed to provide income for your beneficiaries once you pass. Those benefits are based on your earnings records and the age at which you first file for Social Security. Surviving spouses, children, and even parents of deceased workers are eligible for survivors benefits.
Clearly, there’s a lot to learn about Social Security, but familiarizing yourself with these key terms will help you better understand how the program works. It also pays to read up on ways to maximize your benefits so that you end up getting the best possible payout you’re entitled to.

How to Get Medicaid for Nursing Home Care Without Going Broke

My Comments: Politicians apparently have no earthly idea what getting old does to your finances. Of the 50 state Medicaid directors, red states and blue states, all 50 came out in opposition to the most recent attempt by Congress to repeal the ACA or ObamaCare.

None of us are willing to allow the elderly to die in the streets for lack of care. That means programs like Medicaid must be properly funded.

We can argue till the cows come home about the need for rules to prohibit unfair advantages and you’ll get my approval for such rules. There will be competing agendas but does that mean we should give up?

And somehow, these rules must be written to allow intelligent financial planning. Rules that include how to be cared for without losing your financial sanity. Gabriel Heiser’s ideas have value for all of us.

Gabriel Heiser 9/21/2017

Well-off people can easily go broke paying for sky-high nursing home care: First they deplete their own funds and then, eventually needing Medicaid, spend down nearly all the rest of their assets to qualify for that government program designed for low-income individuals.

The way to avoid this terrible situation is to put in place a Medicaid asset-protection plan early on. One powerful solution is to buy a single-premium immediate annuity, says attorney K. Gabriel Heiser, an elder care Medicaid expert, in an interview with ThinkAdvisor.

For 25 years, Heiser focused exclusively on elder law, and estate and Medicaid planning. He is author of “How to Protect Your Family’s Assets from Devastating Nursing Home Costs: Medicaid Secrets” (Phylius Press 2017-11th updated edition).

Sixty percent to 70% of nursing home patients are on Medicaid, says Heiser.

In determining eligibility, Medicaid differentiates sharply between “assets” and “income.” The potential Medicaid recipient is permitted to have only $2,000 in assets, though they can still receive certain income under certain circumstances.

In the interview, Heiser discusses a number of techniques — all of them legal — to shelter or reduce assets to qualify for nursing-home Medicaid.

One of the best, he says, is a so-called Medicaid-Friendly annuity, which essentially converts “countable” assets into income, which is exempt.

The average cost of nursing home care is $92,000 a year and much higher in New York and Hawaii, among other states. The average stay is two-and-a-half to three years. Care for a person with Alzheimer’s disease in a locked unit can come to more than $450,000 annually and is typically for a period of at least five years, Heiser says.

Though Medicaid wasn’t created for middle-class people “to pass their money on to their children at taxpayers’ expense,” Heiser writes, he reasons that it makes sense and isn’t unethical to “avail yourself of the laws” in order to minimize expenditures on nursing home care and indeed “pass those savings on to your children.”

Most folks make the mistake of waiting too long to plan for asset protection, says Heiser. They should begin at the first sign that their spouse, parent or sibling likely will need nursing home care.

Heiser was formerly chair of the estate planning committee of the Massachusetts Bar Association and an adjunct professor of the College for Financial Planning at David Lipscomb University. A professional version of his book, “Medicaid Planning: From A to Z,” is directed at attorneys, financial advisors and CPAs.

ThinkAdvisor recently spoke with the semi-retired Heiser, 68, on the phone from home in San Miguel Allende, Mexico. He revealed some of his Medicaid secrets and how they can help clients shelter their assets. Here are highlights:

THINKADVISOR: What’s critical to know about Medicaid?

GABRIEL HEISER: To qualify, you can’t have more than $2,000 in Medicaid-countable assets. So if you have cash in the bank or any other assets that aren’t on the exempt list, they’ll count toward the $2,000. That’s not a very high amount — but the point of Medicaid is that it’s supposed to cover the poor.

You write that hiding money and not reporting an asset on a Medicaid application is fraud.

Yes, fraud against the government. You’ll be disqualified for Medicaid, and there are also criminal penalties.

What about having income?

You can still qualify if you have, say, pension income. But there’s a cap of $2,205 a month for Medicaid recipients. However, some states have a rule that if your income is over that figure, you can direct your Social Security or pension into a trust — a Miller Trust, also known as a Qualified Income Trust.

The trustee pays the money to the nursing home, and Medicaid pays the difference. Typically, the bills are going to be more than $2,000 a month. So even though you have income over the cap, you can still qualify by setting up that trust.

Note: there are three more pages of Gabriel Heiser’s words of wisdom on this topic. To read the rest, click HERE.

A Majority of Working Americans Are Completely Wrong About Social Security

My Comments: The first monthly Social Security income benefit ever paid was to Ida May Fuller on January 30, 1940. Today, some 77 years later, it is a critical income source for millions of Americans.

This article by Sean Williams confirms the role Social Security plays in the lives of millions of Americans, and I’m one of them. If not already, you too will become a recipient of benefits from this 82 year old program.

I’m creating an internet course called Successful Retirement Secrets. It will have three major topic areas, one of them about Social Security.

The course will be a comprehensive and sophisticated outline for someone to follow as they slowly move through life toward retirement. I expect to have it ready to go before year end.

Sean Williams | Dec 10, 2016

In terms of retirement income, no program is more vital to seniors’ financial well-being than Social Security. For more than 75 years, Social Security income has been providing a financial floor for countless seniors, with the Center on Budget and Policy Priorities estimating that elderly poverty rates in America are just 8.5% because of Social Security income, as opposed to 40.5% without it.

Data from the Social Security Administration backs up this reliance on benefits. According to the SSA, 61% of all beneficiaries are counting on their Social Security benefits to supply at least half of their monthly income. This figure was particularly high (71%) for unmarried elderly individuals. Even pre-retirees, which believe they’ll be less reliant on Social Security than the current generation of beneficiaries, would likely struggle to make ends meet without Social Security income.

While on one end Social Security has been a financial blessing for many retired workers, their spouses, and their families, it’s also a major cause for concern. Projections from the Social Security Board of Trustees suggest that the program could begin paying out more in benefits than it’s bringing in via payroll taxes, interest, and through the taxation of benefits by 2020, ultimately culminating in the program exhausting its more than $2.8 trillion in spare cash by the year 2034.

A majority of working Americans have this all wrong

If you’re among the many retirees reliant on Social Security, the idea of the program “exhausting its spare cash” probably sounds terrifying. The TransAmerica Center for Retirement Studies, which regularly surveys Americans to get a feel for their retirement preparedness and knowledge, found earlier this year that 77% of workers are concerned that Social Security will not be there for them when they retire. Yet the truly terrifying fact here isn’t that Social Security’s spare cash is expected to be depleted in less than two decades; it’s that a majority of working Americans are just plain wrong about Social Security.

One of the near-surefire guarantees of Social Security is that it will be there when baby boomers, Generation X, millennials, and Generation Z retire. In other words, Social Security won’t be going bankrupt anytime soon, if ever.

The reason Social Security will be able to provide benefits to America’s retired workforce, the disabled, and survivors of deceased workers lies with the payroll tax. Even if the more than $2.8 trillion current in spare cash is depleted as the Trustees report has predicted, payroll tax revenue — a 12.4% tax that’s often split down the middle between you and your employer, or which is paid in full by the self-employed — will continue to be levied and collected on America’s workforce. As long as Americans keep working, the program will continue to generate revenue.

Social Security can, in theory, continue forever as a budget-neutral program that pays out benefits based on what is collected via payroll tax revenue and the taxation of benefits. Interest income earned from its spare cash is the only component of the program set to essentially disappear once that excess cash has been exhausted.

Two steps for working Americans to take now

The true worry for working Americans should be that their future Social Security benefit may be reduced from its current trajectory. The Board of Trustees estimates that when the spare cash is depleted, across-the-board benefit cuts of 21% may be needed to sustain the program through 2090. This would put three in five retirees who count on Social Security for a majority of their monthly income in a very precarious position.

This estimate serves as a wake-up call for working Americans to both (1) have a working budget and retirement budget ready, and (2) have alternative channels of income for retirement.

1. Have a working and retirement budget

Budgeting is critical for a variety of reasons but none more important than that it helps you understand your cash flow. If you don’t have a firm grasp of where your money is being spent once it’s deposited into your account by your employer, then your chances of maximizing your saving habits or minimizing your discretionary spending is low.

Creating a budget can be done entirely online these days with the use of free software, and the biggest challenge is no more involved than adding and subtracting and sticking to your plan. Some of the most helpful hints for budgeting with the goal of saving as much as you reasonably can for retirement include:

• Getting everyone in your household involved, since it’ll encourage you and those around you to stick to the household budget.
• Meeting up with like-minded individuals once or twice monthly to share your ideas and progress.
• Using separate accounts for different spending categories, such as food and entertainment.
• Most importantly, analyzing your data monthly to assess your progress.

Having a retirement budget is just as critical as the budget working Americans use to save money. Retirement probably means giving up a consistent working wage for good, and for many Americans that can mean a sudden drop in monthly income. If you’re nearing retirement and haven’t thought about a retirement budget, you could be in for a shocking surprise when your income drops 10%, 20%, or even more once you retire, especially if you’re still working with your old budget from when you were working.

Furthermore, not having a retirement budget in place could lead to you depleting your nest egg faster than expected or pulling out more than you need from your retirement accounts each year and paying more in taxes as a result.

2. Have alternative channels of income

Working Americans also need to ensure that they have alternative channels of income beyond just Social Security when they retire. If you have other forms of income, then a 21% cut to Social Security benefits may not be crippling to your financial well-being.

Arguably the most popular retirement income channel is the employer-sponsored 401(k). According to, 52.5 million Americans have a 401(k), with the value of assets held by 401(k)s totaling about $4.5 trillion. A 401(k) is a tax-deferred retirement plan, meaning the money is taken out pre-tax and can lower your current-year tax liability. However, you’ll owe federal tax once you begin making withdrawals during retirement. A 401(k) can be particularly attractive if your employer offers to match a percentage of your contribution, which is essentially free money.

For those of you who work for an employer that doesn’t offer a 401(k), either a traditional IRA or Roth IRA is always available. The popularity of the Roth IRA has grown particularly quickly in recent years since eligible distributions are completely tax-free. Unlike a traditional IRA or 401(k), which provide that aforementioned up-front tax benefit and deferred taxation until retirement, a Roth IRA is funded with after-tax dollars — and since you’ve already paid your taxes on those dollars, any subsequent gains on that money is free and clear of taxation as long as you make a qualified withdrawal.

Long story short, there are ample ways for working Americans to save money and diversify their income stream during retirement. Social Security will be there for you when you retire, but that doesn’t mean you should rely on it to be your primary or sole source of income.

Surprise! The Republicans’ Congressional Budget Resolution Would Trigger Social Security Reforms

My Comments: In light of what happened in Las Vegas and the death of Tom Petty, my comments here are woefully inadequate. But with many millions of us still trying to function on this planet, sooner or later our thoughts will return to Social Security.

While the above referenced Budget Resolution may have changed somewhat, the threats posed by both action and inaction to Social Security are real. 2034 is not really that far down the road.

Sean Williams Aug 19, 2017

President Trump may have to break his promise not to touch Social Security.

In 2016, the Center on Budget and Policy Priorities, a nonprofit policy institute, examined 2015 data to gauge the impact Social Security income has on our nation’s seniors and determined that without it some 22 million people, 15 million of whom are seniors, would be considered poor. Social Security is truly important in allowing our nation’s senior citizens to make ends meet; 61% of them rely on Social Security for at least half of their monthly income.

Social Security is coming to a crossroads

Yet, this crucial program is on a slippery slope toward disaster, and a lot of people, including lawmakers in Washington, know it. Demographic changes that include the ongoing retirement of baby boomers, the steady lengthening of life expectancies, and the rich notably outliving the poor — and collecting a larger Social Security check in the process — have weighed on America’s most important social program.

According to the 2017 report from the Social Security Board of Trustees, $3 trillion in asset reserves is expected to start being depleted in 2022, leading to its total exhaustion by 2034. The trustees forecast a further $12.5 trillion budgetary shortfall between 2034 and 2091. When the excess cash is officially gone, Social Security benefits may need to be slashed by up to 23% to preserve payouts through the year 2091.

President Donald Trump pledged during and after his campaign not to touch Social Security, which was a big reason why seniors turned out in favor of Trump during the campaign. Trump instead plans to utilize tax reform, via cuts in corporate and individual tax rates, as a means to boost U.S. GDP growth, expand wages, and generate more payroll tax revenue for Social Security. In 2016, payroll tax revenue accounted for 87.3% of the $957.5 billion collected.

Trump may have to break his Social Security promise

But could Trump break his promise not to touch Social Security? If the Republicans’ 126-page congressional budget resolution, released in July, is anything to go by, we could see Social Security reforms triggered sooner than later.

As pointed out by The Senior Citizens League, budget resolutions are not laws, but they do set forth a blueprint of legislation that lawmakers tend to follow, providing the American public with some guidelines of what to expect from Congress.

In particular, the Republicans’ budget resolution for the 2018 fiscal year devoted a section to policy statements on Social Security (Sec. 516, pages 102-107, for those interested). The first two pages discuss the apparent problems with the program, then the concept of a “reform trigger” is introduced:
It is the policy of this concurrent resolution that the House should work in a bipartisan manner to make Social Security solvent on a sustainable basis. This concurrent resolution assumes, under a reform trigger, that–

(1) if in any year the Board of Trustees of the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund annual Trustees Report determines that the 75-year actuarial balance of the Social Security Trust Funds is in deficit, and the annual balance of the Social Security Trust Funds in the 75th year is in deficit, the Board of Trustees should, no later than September 30 of the same calendar year, submit to the President recommendations for statutory reforms necessary to achieve a positive 75-year actuarial balance and a positive annual balance in the 75th year, and any recommendations provided to the President must be agreed upon by both Public Trustees of the Board of Trustees;

(2) not later than December 1 of the same calendar year in which the Board of Trustees submit its recommendations, the President should promptly submit implementing legislation to both Houses of Congress including recommendations necessary to achieve a positive 75-year actuarial balance and a positive annual balance in the 75th year, and the majority leader of the Senate and the majority leader of the House should introduce the President’s legislation upon receipt;

(3) within 60 days of the President submitting legislation, the committees of jurisdiction should report a bill, which the House or Senate should consider under expedited procedures.
In other words, point one above suggests that Social Security reform legislation should already be triggered. Remember, there’s an estimated $12.5 trillion deficit that needs to be dealt with between 2034 and 2091.

In the 2017 Board of Trustees report, the actuarial deficit for the next 75 years rose by 17 basis points from the 2016 report, to 2.83%. This suggests that a 2.83% increase to Social Security’s payroll tax, which currently sits at 12.4% for earned income between $0.01 and $127,200, would need to be passed along to workers and businesses in order to completely eliminate the expected $12.5 trillion budgetary shortfall. But as Trump has noted, direct changes to Social Security are off the table in his mind.

Yet, according to the budget resolutions from the GOP, Trump would be compelled to present legitimate solutions to fix Social Security to the House and the Senate, both of which are under Republican control for the time being.

It’s worth pointing out that the resolution embraces bipartisan cooperation and expediency in passing legislation. However, in light of the partisanship that exists in Congress today, across-the-aisle efforts are highly unlikely. The language also calls for protections of low-income and disabled folks, as well as those who lean on Social Security heavily during retirement, during the reform process.

This isn’t the first time Republicans have hinted at Social Security reforms. Treasury Secretary Steven Mnuchin suggested a few months ago that if Congress were to take up Social Security reforms, the president may have no choice but to consider signing them should a consensus be reached.

Reforms are needed, but they should be bipartisan

It’s pretty evident from the trustees’ data that Social Security reforms are needed, yet it’s been 34 years since any truly major legislation regarding Social Security has been passed. With a 17-year timeline until possible benefit cuts, something needs to be done.

On Capitol Hill, a lack of ideas isn’t the issue. We’ve witnessed dozens of solutions proposed that would, in many cases, eliminate the $12.5 trillion budget shortfall over the next 75 years. The primary issue is that the core fixes for Republicans and Democrats are at opposite ends of the spectrum, yet both resolve the budgetary shortfall. In effect, neither party will remotely consider working with the other (as outlined in the budget resolution above).

Democrats want to approach fixing Social Security by raising additional tax revenue from high earners. Earned income above $127,200, as of 2017, isn’t subject to the payroll tax. Democrats want to adjust this such that the payroll tax is reinstituted on earned income above $250,000 or $400,000, as an example. This would add fresh income to the program.

On the other hand, Republicans want to adjust Social Security for increased longevity. They plan to do this by increasing the full retirement age, or the age at which people become eligible for 100% of their benefits. The full retirement age is on track to hit 67 years by 2022 for those born in 1960 or later, but the GOP would like to see it gradually raised to 68, 69, or 70 years, requiring seniors to work longer and wait to claim Social Security, or accept a steep reduction in benefits by claiming early.

Combined, these core proposals would work to resolve Social Security’s long-term issues. But can Republicans and Democrats play nice in Washington? That remains to be seen.

Are You Ready to Take Social Security Benefits?

My Comments: Today is Tuesday so today I talk about Social Security. These comments by Dan Caplinger may be old news, but for those of you just starting to think about retirement, know that Social Security is a fundamental income component for millions of people.

Chances are, you’ll be in that group. The sooner you get your arms around this idea, the happier you will be.

by Dan Caplinger on Sep 17, 2017

There are some things you need to be aware of before you file for retirement benefits from Social Security.

Social Security helps support tens of millions of Americans in retirement. Because of how important Social Security benefits are, you can’t afford to make any mistakes about how the program works and how you can get the most out of it that you can. In particular, these must-know facts about Social Security are often misunderstood, leading to critical errors that can result in getting lower benefits than you’re entitled to receive.

1. Social Security payments vary depending on when you take them

Most people understand that you can claim your Social Security as early as 62 or as late as 70, and when you claim can have an impact on how much money you get. Yet even though the mechanics are simple, many people don’t understand them. For starters, know that your “primary insurance amount” is the monthly benefit you’re entitled to receive if you claim Social Security at your full retirement age, which for those retiring now tends to be between 66 and 67. The Social Security Administration calculates your PIA based on your lifetime earnings and the year of your birth.

If you claim benefits early, then you lose a certain percentage of your PIA based on how early you claim. Up to 36 months early, you’ll lose 5% of your benefits for every nine months that you’re early, while shorter periods result in pro-rated decreases. If you claim more than 36 months early, then you’ll lose an additional 5% for every 12 months that you’re early in claiming them. That makes the maximum possible benefit reduction 35% (for those whose full retirement age is 67 and who claim at 62).

Those who claim their own retirement benefits late get a bonus of 2% for every three months that they wait beyond their full retirement age. That comes to a maximum bonus of 32% (for those whose full retirement age is 66 and who claim at 70). These bonuses aren’t available for spousal benefits but only for benefits paid on your own record. By understanding these provisions, you’ll be better able to calculate the impact of various options on your finances.

2. Your claiming decision can affect benefits for your entire family

Your family members may be entitled to Social Security based on your work history under certain circumstances. This is most common for spouses: If you’re married, your spouse may be eligible to receive up to 50% of your primary insurance amount as a spousal benefit. However, other family members, such as children or parents, may also be entitled to benefits.

In order for these family members to claim their benefits, you usually must file for and receive your own retirement benefits. In the past, alternative strategies allowed workers to file for benefits but then suspend them, opening the door to spousal and family benefits while letting the worker put off their benefits and thereby earn delayed-retirement credits. With the repeal of the file-and-suspend rule, that’s no longer an option, so families have to weigh the impact of having a worker delay benefits against the ability of other beneficiaries to get payments.

3. The government can take away some of your Social Security benefits in some cases

The laws governing Social Security provide for several instances in which benefits can be lost. If you claim Social Security before reaching full retirement age and while you’re still working, then you may start forfeiting part of your benefits if you earn more than $16,920 per year. Those who worked for public employers with their own pension programs can end up losing money because of the provisions of the Government Pension Offset and Windfall Elimination Provision.

The government may also take away part of your benefits indirectly through taxation. If you receive Social Security benefits, and the sum of half of those benefits plus your other sources of income exceeds certain thresholds, then a portion of your Social Security income is treated as taxable income and therefore boosts the amount of tax you’ll owe. It sometimes makes sense to defer taking Social Security benefits if you know that claiming them now will leave you open to losing some of those hard-earned monthly checks.

Be ready for Social Security

Claiming your Social Security benefits at exactly the right time can be tough, especially if you don’t have extensive financial assets to supplement those benefits. Nevertheless, it’s worth the effort to learn what you can about the program and the strategies that will help you get the most from it.

Will This Happen to Social Security?

Tuesday = Social Security comments

Concern about the continued viability of our Social Security system if very justified and real. The solutions to the problem are reltively simple and if started soon, will be absorbed by the economy with relative ease.

But Capitol Hill is the wildcard here. The crisis is far from dramatic. Yet. Elected representatives in both houses of Congress operate on an election cycle timeframe. If the crisis isn’t within the current cycle, the response is essentially “Not my problem!”.

But the issues does give each and everyone of us the opportunity to explore the current thinking of every single candidate as they go through the election process. Without that kind of pressure, they won’t act until the ball is about to drop.

Sean Williams \ Aug 7, 2017

According to the June 2017 snapshot from the Social Security Administration, nearly 61.5 million people were receiving a monthly benefit check, of which 68.2% were retired workers. Of these 41.9 million retirees, more than 60% count on their Social Security to be a primary source of income. That’s huge, and it demonstrates just how important Social Security is for current and future generations of seniors.

Is Social Security doomed?
Of course, as you’re also probably aware, the program isn’t on the best footing. A number of demographic changes are expected to wreak havoc on Social Security and throw its future into limbo. These include the retirement of, on average, more than 10,000 baby boomers per day, which is pushing the worker-to-beneficiary ratio lower, and the lengthening of life expectancies, which has allowed seniors to pull a benefit from the program for an extended period of time.

The result, according to the latest Social Security Board of Trustees report issued last month, is that benefits could be slashed for current and future retirees by up to 23% in 2034 should Congress fail to act. It’s not exactly the best outlook for a program that means so much to our nation’s retirees.

But there’s an even more glaring figure to most Americans: Social Security asset reserves. The Trustees report predicts that asset reserves could touch $3 trillion by 2022, implying the program is expected to remain cash flow positive through 2021. However, beginning in 2022, and each year thereafter through 2091, Social Security will be paying out more in benefits than it’s generating in revenue, resulting in a $12.5 trillion cash shortfall between 2034 and 2091.

Social Security’s bankruptcy is almost certainly a myth
Some Americans view this imminent cash shortfall as the end for Social Security — especially millennials. When surveyed in 2014 by Pew Research, 51% of millennials believed that Social Security wouldn’t be there for them when they retired. Thankfully, though, this worry turns out to be nothing more than the program’s most pervasive myth.

Social Security will almost certainly be there for many future generations of retirees for one key reason: the payroll tax.

The payroll tax is a 12.4% tax on earned income between $0.01 and $127,200, as of 2017. This maximum taxable earnings figure often increases on par with the Wage Index. Also, it’s worth noting that most workers only pay 6.2% of their earned income into Social Security, with employers picking up the tab on the remaining 6.2%. In other words, as long as people keep working, the payroll tax will keep getting collected, generating income for Social Security to disburse to eligible retirees. Since the payroll tax comprised a whopping 86.4% of income collected in 2015, there should still be plenty for the Social Security Administration to disburse. Unfortunately, this doesn’t mean that current payment levels are sustainable, which is why the Trustees are suggesting cuts could be imminent within two decades.

This is the only way Social Security could possibly go bankrupt
Of course, when we’re talking politics, we can never say anything with 100% certainty. While Social Security currently can’t go bankrupt thanks to the payroll tax, legislation on Capitol Hill could always change that.

Earlier this year, a Republican lobbyist had tinkered with the idea of reducing or eliminating the payroll tax in its entirety, according to Fox News. Assuming the average household generates about $50,000 in income annually, and that most people work for an employer, we’re talking about an average of $3,100 in extra income in the pockets of households each year. Since we’re a consumption-driven economy, this extra cash could fuel spending or bolster personal saving and investment. At least that’s the idea on paper.

The reality of the plan is that it would potentially end the primary source of funding for Social Security. Interest income only provided 10.1% of revenue in 2015, with the taxation of benefits kicking in another 3.4%. If payroll taxes are eliminated, Congress would need to find a way to generate at least $800 billion in annual income. One idea floated around was a value-added tax (VAT) on consumption, which is purportedly capable of generating $12 trillion in revenue over the next decade. However, a VAT could also reduce consumption, and it makes revenue generation very lumpy given natural economic cycles and the regular occurrence of recessions and economic slowdowns.

In short, it’s not a very good idea, in my opinion. However, if Congress were to move forward with a plan to reduce or eliminate the payroll tax, then, and only then, would it be possible for Social Security to go bankrupt.

A silver lining, but you need to remain proactive

Breathe a sigh of relief, folks, because Social Security isn’t going anywhere. If there is a silver lining, it’s that you will receive income during retirement, as long as you’re eligible.

Nevertheless, the Trustees report serves as a genuine wake-up call that working Americans need to turn their attention to saving and investing in order to reduce their reliance on Social Security. After all, Social Security is only designed to replace about 40% of your working wages, but quite a few seniors are leaning on the program for much more.

This all starts with formulating a budget and saving more. The May personal savings rate was a paltry 5.5%, per the St. Louis Federal Reserve. Financial advisors suggest saving 10% to 15% of your paychecks if you want to retire comfortably, and the only way to do so is to better understand your cash flow. Formulating and reviewing a budget can often be done in around 30 minutes each month, and it can be done online, making it easier than ever to save money.

Likewise, even though the stock market goes through bouts of volatility, it’s shown time and again that it’s among the best wealth creators over the long term. Historically, the stock market has appreciated at a pace of roughly 7% per year, inclusive of dividend reinvestment. Proactively saving more and investing wisely is a good, but simple, formula to reduce your reliance on Social Security once you retire.