Category Archives: Social Security

How Social Security’s Troubles Could All Just Go Away

My Tuesday Comments on Social Security: Some of us remember what happened in 1983 when Congress was sane and was facing a financial crisis. Within the span of six years, which happened to be the same six year election cycle of the Senate, the system was expected to crash. So bending to common sense, Congress made some changes that resulted in the system we more or less have today.

That was 35 years ago and there is writing on the wall that more changes will need to be made. The changes need not be dramatic and are relatively simple. But it will require leadership committed to the welfare and well being of the people they allegedly profess to lead. Right now I’m unsure about that.

The takeaway here is that my children will arrive at a point in time when Social Security will become a critical part of their ability to pay their bills and live what to them is a normal life. They are going to have to learn that if that is to happen, they have to vote for candidates who will work on their behalf.

by Dan Caplinger, August 19, 2018

The release earlier this year of the Social Security Trustees Report brought about the usual set of headlines explaining the financial crisis that the retirement and disability benefits program faces. The latest projections confirmed expectations that if nothing changes, the Social Security Trust Funds will be out of money by 2034. That could force an immediate and dramatic benefit cut for tens of millions of Social Security recipients at a time in their lives when they’re least able to weather an income cut.

Yet when you look at the report, you’ll find several instances within its 270 pages in which the trustees say that things might well turn out OK. Actuarial projections in these cases work out positively throughout the next 75 years, and Americans are able to keep getting their benefits without any threat to the trust funds. Under this rosy scenario, no changes to Social Security end up being necessary in order to assure the survival of the program and full benefits for all.

That raises an obvious question: What has to happen for this favorable outcome to happen? You’ll find the answer in the report, in its discussion of what it calls the low-cost assumptions for Social Security.

Projecting the future of Social Security
To make the sophisticated actuarial projections that go into producing the numbers in the Social Security report, those who prepare the report have to make assumptions about key variables that determine how much money Social Security brings in and pays out. But economists can’t be certain about exactly how those factors will play out. As a result, Social Security uses three different sets of assumptions: low-cost, intermediate, and high-cost.

These three sets of assumptions work the way you’d expect. The low-cost assumptions are generally optimistic, predicting quicker recoveries from economic downturns, expecting stronger economic growth over the long haul, and seeing other factors work out favorably from the standpoint of funding Social Security. The high-cost assumptions take a more pessimistic view, expecting weaker growth and prolonged recessions along the way. The intermediate assumptions split the difference.

In particular, here are a few of the assumptions that the low-cost model makes, compared to the intermediate scenario:
• Fertility rates of 2.2, compared with 2.0 under the intermediate assumptions.
• A rise in economic productivity at an ultimate average annual of 1.98%, rather than 1.68%.
• A rise in the consumer price index at an average of 3.2% annually, rather than 2.6%.
• An expected growth rates in average earnings of 5.02%, compared with 3.8%.
• Long-run real wage differentials of 1.82%, versus 1.2%.
• Larger working-age populations and labor force participation than in the intermediate model, with unemployment rates of 4.5% compared with 5.5%.
• GDP growth of 3.2% rather than 2.4%.
• Real interest rates of 3.2% versus 2.7%, based on nominal interest rates of 6.4% compared to 5.3%.

How all these factors interact gets complicated quickly. But in general, using the low-cost assumptions, things work out well for Social Security. Relatively lower life expectancies reduce the length of time retirees collect benefits, and a lower number of married couples cuts the burden of spousal and survivor benefits on Social Security’s shoulders. Higher interest rates let the trust fund balances generate more income.

A low-cost scenario would be great — but don’t hold your breath
The Trustees’ Report shows the benefits of having the low-cost scenario play out. Under those projections, the combined trust funds for the old age and disability trust funds never run out, with the combined funds declining from the 2018 level of about 289% to reach a low point of 113% of expected annual benefits in 2050. From there, a shift back in demographics helps the trust funds build up capital again, topping two years’ worth of benefits by 2095. That’s a far cry from dealing with completely using up both trust funds by 2034.

The challenge with the low-cost assumptions is that they’re unlikely to occur. The fact that projections haven’t deviated much from their course of expecting trust fund exhaustion in the mid-2030s shows that the intermediate assumptions on which those projections are based have generally turned out to be accurate historically. It would take a fundamental shift to make low-cost assumptions more realistic.

Most of the reason the low-cost assumptions are there is to give a sense of how sensitive the results are to economic factors that differ from the intermediate assumptions. Just because the low-cost assumptions exist doesn’t mean that there’s any significant chance that they’ll actually occur. For those who think that the assumptions under the low-cost model represent targets for economic and fiscal policy to strive toward, it’s extremely unlikely that the economy will cooperate enough to fix Social Security without specific and direct action from lawmakers.

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New Medicare cards: What to do if you haven’t received your new card

My Comments: I have not yet received mine but perhaps it’ll come in today’s mail.

The idea is that with so much money at stake, there are too many opportunities for the bad guys to game the system. This is an effort to make that harder. I hope it works as planned.

What I know is that without Medicare and what is known as a medi-gap insurance policy, my out of pocket expenses would dramatically exceed what I now pay as my share of the insurance premiums. Hardly a month passes without my spending time with one physician or another.

September 4, 2018 | Leada Gore

More than one million people in Alabama and four other states will be receiving new Medicare cards in the coming weeks.

The new cards no longer contain a person’s Social Security number, replacing it with a unique, randomly-assigned Medicare number designed to protect people’s identities.

“This change not only protects Medicare patients from fraud, but also safeguards taxpayer dollars by making it harder for criminals to use Social Security numbers to falsely bill Medicare for care services and benefits that were never performed,” said Angela Brice-Smith, Regional Administrator for the Centers for Medicare & Medicaid Services.

The new card will not change any of the program benefits and services that eligible people enrolled in Medicare receive.

The cards are currently being mailed to residents in Alabama, Florida, Georgia, North Carolina and South Carolina. If you’ve not received your card, you can log on to your mymedicare.gov account and, if your card has been mailed, you can see your new number or print an official copy. If you don’t have an account, visit MyMedicare.gov to create one.

You can go here and put in your email to see the current status of your card.

You can also call Medicare at 1-800-633-4227.

Social Security’s Primary Insurance Amount: What Is It?

Tony’s Comments: Since today is  Tuesday, this is about Social Security. For those of you who plan to retire one day, a basic understanding of Social Security and how it works is a critical element of your overall retirement planning strategy.

This article appeared in Motley Fool, and for whatever reason, does not have an author named or a date applied. At the bottom is a link to the URL where it came from. In the meantime, perhaps this information will help you as your journey through life toward retirement.

It starts here: Do you know how much you’re going to get in Social Security? Probably not. According to a recent survey by Nationwide, 63% of would-be retirees confess they don’t know how Social Security works, and even more scary, the average worker estimates they’ll bring in $1,628 per month in benefits, which is 30% more than current retirees say they collect.

Overestimating your benefit can throw your retirement savings strategy out of whack. To keep that from happening, it can help to understand Social Security’s complex calculation and more specifically, how Social Security determines your primary insurance amount, or the amount of money you can draw from Social Security at your full retirement age.

Let’s clear up the confusion

Social Security is designed to replace 40% of workers pre-retirement income in retirement. However, the way that Social Security is calculated means that the amount you actually receive in retirement may be much higher or lower than that percentage.

A pay-as-you-go program, Social Security payments are financed by payroll taxes on current workers, but not all of a worker’s income is subject to these taxes. In 2018, payroll taxes only apply on income up to $128,400. Because there’s a cap on taxes, there’s also a cap on the amount you can receive in benefits.

The amount of money you make every year that’s subject to taxes is important, because Social Security ultimately determines how much you’ll receive in benefits based on the average inflation-adjusted income you earned during your 35-highest earning years of work.

Specifically, Social Security begins its calculation by coming up with your average indexed monthly earnings (AIME).

To determine your AIME, your historical annual earnings are adjusted for inflation using Social Security’s average wage index (AWI), an index that tracks national changes in wages with a two-year lag. Specifically, your historical income will be indexed based on the AWI reading for the year two years prior to the age you turn 62 — the earliest age at which you can claim Social Security.

For instance, the historical earnings for a person turning age 62 in 2018 are indexed based on the 2016 AWI figure of $48,642.15. To adjust their historical income, Social Security divides $48,642.15 by the AWI for each year of earnings to get an indexing factor for each year. Once that’s done, it multiplies each year of the person’s earnings by the factor for that year to get an inflation-adjusted earnings amount. Then, it sorts out and sums up the highest 35 years of income and divides that number by 420, or the number of months in 35 years, to come up with your AIME.

What is a primary insurance amount?

Your AIME isn’t the amount you’ll get in Social Security benefits every month, though. To come up with that number, Social Security has to calculate your primary insurance amount.

In this step of the calculation, Social Security applies something called “bend points” at specific thresholds of your AIME to reduce the amount of your actual benefit.

The thresholds are adjusted annually by changes to the AWI, but the percentage reduction that’s applied at each threshold is fixed.

In 2018, the first bend point applies to income up to $895, the second bend point applies to income between $895 tot $5,397, and the third bend point applies to income above $5,397.

For example, applying bend point to a person with an AIME of $5,500 would result in a primary insurance amount of $2,262, which works out to 41% of AIME. The formula for that calculation looks like this: .9(895) + .32(5397-895) + .15(103) = $2,262

For perspective, let’s look at how this calculation would impact a lower income earner and a higher income earner.

If your AIME was $1,800, then your primary insurance amount would be $1,095, or 61% of your AIME: .9(895)+ 0.32(905) = $1,095

Now, let’s say your AIME was $7,500. In that case, your primary insurance amount would be $2,562, or 34% of your AIME: 0.9(895) + 0.32(5397-895) + .15(2103) = $2,562

Finally, if you qualify for the maximum AIME of $9,936 in 2018, then your primary insurance amount would only be 29.5% of your AIME.

When you claim impacts benefits

The primary insurance amount isn’t necessarily the amount you’ll collect every month, either. That’s going to depend on the age at which you begin collecting Social Security.

You can claim Social Security as early as age 62, but you’ll only get your primary insurance amount if you wait to claim until your full retirement age, which varies between age 66 to 67 based on your birth year for people born after 1954. If you claim sooner than full retirement age, then you’ll be penalized with a lower payout because Social Security is designed to pay the same amount out over your lifetime regardless of the age you claim.

For instance, if you were born in or after 1960, your full retirement age is 67. If you begin drawing Social Security at age 62, you’ll collect 30% less than your primary insurance amount.

Alternatively, you can get a bonus of up to 8% per year up to age 70 if you delay taking your benefits beyond full retirement age. If your full retirement age is 67 and you begin drawing benefits at age 70, then you’d collect 24% more than your primary insurance amount.

Things to remember

The calculation is complex, but Social Security does all the heavy lifting for you. You can call Social Security or set up online access on their website to see your actual primary insurance amount and the impact of claiming at different ages. So, don’t let the formula concern you.

What’s important is understanding that you have some control over how big or small your primary insurance amount will be. If you’re an employee, the best way to maximize your primary insurance amount (beyond asking for a raise) is to continue working. If you have fewer than 35 years of work history, Social Security uses zeroes when calculating your AIME, and that reduces your primary insurance amount. Therefore, getting rid of zeroes in your calculation can give you a big boost.

Overall, knowing how Social Security determines your benefit allows you to make smart decisions about your retirement savings plans. If you fail to plan ahead and overestimate how much you’ll get in benefits, you could end up very disappointed.

Source article: https://www.fool.com/retirement/social-securitys-primary-insurance-amount-what-is.aspx

The Truth About Social Security: Setting the Record Straight

My Comments: Retirement at some point in your life is both a goal and an outcome. It may happen voluntarily or it may be forced on you. Regardless of how you get there, chances are you’ll still have bills to pay.

Those bills will be paid from money you’ve saved and accumulated or from Social Security. If either or both of those reach ZERO, you have a problem. Understanding the Social Security structure and how it was both intended and has evolved will help you decide who you want representing you in Congress.

by Nancy Altman Tuesday, August 14, 2018

President Franklin Roosevelt signed our Social Security system into law eighty-three years ago today, on August 14, 1935. It has stood the test of time.

Social Security protects us against the economic consequences of risks to which all of us are vulnerable. Rich or poor, any of us can suffer a devastating, disabling accident or illness. Rich or poor, any of us can die prematurely, leaving young children behind. Rich or poor, all of us hope to grow old. When we do, if we are to have a dignified and independent retirement, we need a guaranteed steady income which we cannot and will not outlive.

Social Security addresses universal economic risks that have always been with us and always will be. That explains why more than 170 countries today have some form of social security. It also explains Social Security’s deep and longstanding popularity in our country. In a survey conducted in 1936—one year after the enactment of Social Security, before a penny of benefits was expended—68 percent of those surveyed expressed approval for the new and untested program. By 1944, that percentage was a nearly unanimous 96 percent. That high level of support has been consistent throughout the last eighty years.

Despite Social Security’s more than eighty-year history, some elites either do not understand Social Security or willfully refuse to understand it. They talk about providing benefits to those who need them, as if the program were government largesse, which it is not. Rather, Social Security is insurance that is earned through work and paid for with premiums regularly deducted from workers’ pay.

In addition, elites often speak as if the trust funds were some kind of gimmick, somehow less real than private pension trust funds. Perhaps most absurd are those who claim that what the creators of Social Security intended is not the program we now have.

Indeed, today’s discussions of Social Security are replete with revisionist history—statements made today about what was or was not intended by its original creators and champions. Some of today’s revisionist statements are zombie lies: Claims made and refuted again and again over the last eighty years; claims that refuse to die.

Former Senator Alan Simpson (R-WY), for example, has stated that Social Security “was never intended as a retirement program. It was set up in ’37 and ’38 to take care of people who were in distress—ditch diggers, wage earners….” Nationally syndicated columnist George Will claims, “People forget Social Security was advocated … in the 1930s, as a way of getting people to quit working, because they thought we were confined to a permanent scarcity of jobs in this country.”

Syndicated columnist Robert Samuelson in a column entitled, “Would Roosevelt recognize today’s Social Security?” even claims, “Social Security has evolved into something he never intended and actively opposed.” Samuelson, Will, Simpson, and the other revisionist historians are wrong. Indeed, to state it bluntly, those modern-day statements are all nonsense.

Roosevelt’s and the other founders’ words and actions make clear that they envisioned Social Security to be a permanent part of the economy, once the Great Depression was history. They knew that the nation would return to full employment. When we did, the goal was to have in place Social Security and other programs that improved the economic security of all Americans and prevented, as much as possible, the human cost imposed by the ups and downs of all modern economies. In particular, Social Security was not designed to alleviate the suffering of people caught in the immediate distress of the Great Depression, nor to get people to quit their jobs. Rather, it was set up as wage insurance that people earned.

This should be obvious to anyone with even a superficial knowledge of Social Security’s history. Because the architects knew that it would take time and work to earn Social Security’s benefits, the Social Security Act of 1935 was written so that not a single penny of those earned monthly retirement benefits was payable for seven years!

But the absurdity of those revisionist historians goes much further than simply being wrong on the facts. They seek to expunge the far-sighted and noble vision of Social Security’s founders. President Roosevelt and those around him had a sweeping vision that still has yet to be fully realized.

When Roosevelt signed the Social Security Act of 1935 into law, he described it as “a cornerstone in a structure which is being built but is by no means complete.” He and his colleagues were anything but short-sighted. They were not simply and solely focused on the immediate distress caused by the Great Depression, as the revisionists would have us believe. Rather, they saw Social Security as a “cornerstone,” a beginning on which to build.

Despite today’s revisionists, the structure and size of today’s Social Security program is completely consistent and harmonious with what Roosevelt began. Medicare is consistent with a first step toward the vision of universal health insurance. The revisionists are wrong when they claim that Roosevelt would not recognize today’s Social Security and Medicare.

He would be surprised that more progress hadn’t been made, but he would absolutely recognize how those who came later built on what he envisioned and began. Now it is our turn. It is time to expand Social Security and enact an improved Medicare for All.

Source article: https://www.commondreams.org/views/2018/08/14/truth-about-social-security-setting-record-straight

The Stark Reality of Social Security: Someone Has to Take a Pay Cut

My Comments: As a financial planner focused on retirement, I counsel people about where the money is going to come from when they’re 85 and still have bills to pay. And 85 is simply a symbolic number.

A critical source for most of us is Social Security. And it’s under attack by those we’ve elected to represent us in Congress. These words appeared some 20 months ago and since then the pressure has grown stronger.

We need to take a hard look at those we vote for and make sure we’re not shooting ourselves in the foot.

By Sean Williams Published January 22, 2017

According to the November update from the Social Security Administration, nearly 61 million people are receiving monthly Social Security benefit checks, roughly two-thirds of whom are retired workers. For these retirees, more than 60% rely on their Social Security check to account for at least half of their monthly income. In other words, without Social Security there would likely be widespread poverty among the elderly.

The stark reality of Social Security: Someone’s going to lose

Unfortunately, the program that so many seniors have come to rely on is on the decline, so to speak. Two major demographic shifts — the ongoing retirement of baby boomers and lengthening life expectancies — are expected to turn the program’s cash inflow into an outflow by the year 2020, according to the Social Security Board of Trustees 2016 report. By 2034, it’s estimated that the more than $2.8 trillion currently held in special issue bonds and certificates of indebtedness will have been completely exhausted, at which point an across-the-board cut in benefits of up to 21% may be needed to sustain the program for future generations.

The silver lining throughout Social Security’s imminent decline is that there are a bounty of possible fixes — more than a dozen, to be precise. Some of the Social Security solutions tackle the problem by boosting revenue into the program, while others examine the possibility of cutting benefits in a variety of ways. Thus far, an agreeable solution to fix Social Security has eluded lawmakers on Capitol Hill.

However, there’s a stark reality that these lawmakers, Social Security recipients, and working Americans need to understand: There is no “perfect” fix. If Social Security does have a “best solution,” it’s going to mean that someone has to take a pay cut. In order for the program to serve future generations of retirees, there’s going to have to be some give somewhere. The big question is where it’ll come from.

Should all workers take a pay cut?

One solution that offers a presumed-to-be-bonafide fix is an immediate, across-the-board payroll tax increase on all working Americans. According to the aforementioned Trustees report from 2016, the researchers estimated a 75-year actuarial deficit of 2.66%, down two basis points from the previous year. In English, this means enacting a 2.66% increase in the payroll tax should allow the program to generate enough revenue that no benefit cuts would be needed until the year 2090.

As a refresher, the payroll tax for Social Security is 12.4%, and responsibility for this tax is often split down the middle between you and your employer, 6.2% each. If you’re self-employed, you pay the entire 12.4%. In 2017, the payroll tax applies to every dollar earned between $1 and $127,200. However, wages earned above and beyond $127,200 are free and clear of the payroll tax.

Lifting the payroll tax by 2.66% would mean an aggregate tax of 15.06% on the income of self-employed individuals and a cumulative tax of 7.53% of employees and employers. Workers would have to do with less in their take-home pay, but seniors would more than likely not have to worry about a cut to their Social Security benefits.

Do the rich need to fork over more?

Another solution (and this one is by far the most popular among the public) would be to focus on wealthier Americans and have them pay a larger portion of their income into Social Security. This would be done by tinkering with the payroll tax earnings cap — the aforementioned $127,200 cap at which wages no longer become taxable by the payroll tax.

During her campaign, Hillary Clinton had suggested raising the payroll tax earnings cap to $250,000. By doing so, there would be a payroll tax moratorium on wages between $127,200 and $250,000, but any wages over $250,000 would be subject to the 12.4% tax. The reason lifting the payroll tax earnings cap is so popular is that it would only affect about one in 10 Americans. Since most working Americans are paying into Social Security with every dollar they earn, it would only make sense to most Americans to see the wealthy have to do the same. It would also wind up eliminating a good portion but not all of the budgetary shortfall in Social Security through 2090.

The downside? Other than the fact that the well-to-do would be taking home less income, they also wouldn’t see commensurate benefits from Social Security when they retire, despite paying so much extra into the system.

Do future retirees need to make do with less?

The other side of the equation is to leave the revenue aspect of Social Security alone and tinker with the benefits being paid. Most lawmakers wouldn’t dare suggest reducing the benefits of current retirees, but the idea of adjusting the payouts to future retirees is very much on the table, especially for Republican lawmakers.

The most effective way to reduce benefits for a future generation of retirees without using the words “reduce benefits” would be to raise the full retirement age. Your full retirement age is determined by your birth year (you can find yours with this SSA table), and it marks the age at which the SSA determines you’re eligible to receive 100% of your monthly benefit. File for benefits before reaching your full retirement age, and you’ll take a cut in pay from your full retirement benefit. Wait until after your full retirement age and your benefit will grow beyond 100%.

Raising the full retirement age to 68, 69, or 70 would mean that all brand-new and future retirees would either have to wait longer to receive 100% of their benefit, or they’d have to accept an even bigger reduction in their monthly payout if they claim benefits before reaching their full retirement age. Raising the retirement age could encourage healthy seniors to stay in the workforce longer, thus adding to payroll tax revenue in the process. On the flip side, seniors in poor health or those who can’t get a job could be forced to file for benefits at age 62, taking a big cut in lifetime benefits in the process.

Should current retirees deal with reduced income?

It’s certainly not a popular solution, but cutting benefits for current retirees is another possible answer to fixing Social Security.

One such example was recently touted in the Social Security Reform Act of 2016, introduced by Rep. Sam Johnson (R-Texas), the chairman of the Ways and Means Social Security subcommittee. Among the many fixes offered by Johnson, one involved switching from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the Chained CPI when it comes to calculating cost-of-living adjustments (COLA).

The difference between the two is that the Chained CPI factors in “substitution,” which is the perception that consumers will trade down to lesser expensive goods and services if the price of another good or service rises too much, while the CPI-W does not. Because the Chained CPI factors in substitution, it grows at a slower pace than the CPI-W. The implication being that going with a Chained CPI will result in lower COLAs for retirees.

Which solution is best is really up to interpretation, but one thing is very clear: If Social Security is going to be fixed for the generations to come, someone is going to take a pay cut.

3 Myths About Your Social Security Filing Age

My Comments: Social Security benefit payments are critical for millions of Americans. When you apply and the amount of money you are entitled to is a decision fraught with uncertainty.

Since none of know how our life is going to play out, all we can do is develop an understanding of our choices so that we can at least make an informed decision, even if life ultimately throws us a curve ball. Just know that you are going to get about the same amount of money regardless of when you apply.

That’s because payments will end when you die. In the meantime, you can opt for a smaller check for a longer period of time or wait and get a larger check for a shorter period of time.

Know too that if you are the higher earner of the two, and you die first, then you are providing your survivor with more money per month if you wait. There is no real way to know the best answer.

July 30, 2018 by Jim Blankenship, CFP, EA

Figuring out when to claim your Social Security benefits is a tricky question, and people wrestling with the decision often rely on several widely followed rules of thumb. Unfortunately, doing that can potentially lead you astray, because these are generalities, not rules, and they aren’t as clear-cut as you might think.

Let’s take a long, hard look at three “facts” about Social Security filing age and the real math behind them. All three are only true to a point — and as you’re planning your Social Security filing age, you should understand the truth behind these three principles.

First, let’s look at the concept of delaying benefits.

1. You Should Always Delay Your Social Security Filing Age to 70

This one is the easiest to understand why it’s wrong — but the component of truth in it can be important, because it could work in your favor to delay. Of course, an absolute like this is going to be proven incorrect in some circumstances.

Most people know that if you start taking benefits early — as young as age 62 — your Social Security check will be lower than if you had waited until your full retirement age (FRA). And once you pass your FRA, your benefit grows each year beyond that until age 70, when it tops out. So, if you happen to be able to delay your Social Security filing age and you live a long time after age 70, over your lifetime you may receive more from Social Security than if you filed early. However, if you need the cash flow earlier due to lack of other sources of income or expect a shortened life span, filing early may be your only choice.

Filing earlier can provide income earlier, but depending on your circumstances you may be short-changing your family. When you file early, you are permanently reducing the amount of benefit that can be paid based on your earnings record. Your surviving spouse’s benefits will be tied to the amount that you receive when you file, and so if you delay to maximize your own benefit and your spouse survives you, you’re also maximizing the benefit available to him or her. This is assuming that your surviving spouse’s own benefit is something less than your own.

To see how this all works, consider this example. John, who is 62, will have a benefit of $1,500 available to him if he files for Social Security at age 66, his full retirement age. His wife, Sadie, will have a benefit of $500 available at her FRA. If John files at age 62, his benefit would be reduced permanently to $1,125 per month. When John dies, assuming Sadie is at least at FRA at the time, Sadie’s benefit would be stepped up to $1,237 (the minimum survivor benefit is 82.5% of the decedent’s FRA benefit amount).

On the other hand, if John could delay his benefit to age 68, he would receive $1,740 per month, because he would have accrued delayed retirement credits of 16%. Upon John’s death, Sadie would receive $1,740 in survivor benefits. By delaying his benefit six years, John would have improved his surviving spouse’s lot in life by over $500 per month. Of course, this would require him to come up with the funds to get by in life in the meantime, and so if he did have the funds available this would make a lot of sense. If he didn’t have other funds available, one thing that can help matters is if Sadie filed for her own benefit at age 62 — that would provide them with $375 per month while John delayed his benefits.

What to remember: The key here is that it’s often wise for the member of a couple who has the larger benefit to delay benefits for the longest period of time that they can afford, in order to increase the survivor benefit available to the surviving spouse. But it’s also often necessary to file earlier due to household cash flow shortages. As we’ll see a bit later, only the question of surviving benefits makes the idea of delaying benefits to age 70 a truism. Otherwise, it could be more beneficial to file earlier.

2. Increase Your Benefits by 8% Every Year You Delay Filing

This one again comes from a partial truth: For every year after FRA that you delay your Social Security filing, you will add 8% to your benefit. But the year-over-year benefit differences are not always 8%, and often the difference is much less.

It is true that if you compare the benefit you’d receive at age 66 to the benefit you’d receive at age 67, it will have increased by 8%. However, if you compare your age 67 benefit to your age 68 benefit, it will have increased by 7.41%. This age 68 benefit is 16% more than the age 66 benefit, but only 7.41% more than the age 67 benefit. This is because the benefit increase is based on your FRA benefit amount (age 66 in this example), not the amount you could have received at age 67.

What to remember: Don’t be distracted by the differing percentage changes over the years. The bottom line is, Social Security benefit amounts themselves do increase by approximately 8% per year overall every year you wait – but often the year-over-year percentage increase is less. An increase of 8% is an approximation, but in reality, your increase will often be less.

3. The Break-Even Point is 80 Years of Age

I’ve often quoted this as a generality — rarely pinning it down to a specific year but giving the range of around 80 years old. It’s not that simple, though, when you consider all the different ages that an individual can file. The break-even point is the age at which your lifetime payment amount would be equal, whether you claim Social Security early or late, and if you live beyond that, you would come out ahead by waiting. And if you don’t live to the break-even age, it’s better to claim earlier.

For example, when deciding between a Social Security filing age of 62 versus filing at age 63, your break-even point occurs at age 76 (when your FRA is age 66). But when deciding between age 63 and age 64 (with FRA at 66), the break-even occurs at age 78.

On the other end of the spectrum, when choosing between filing at age 69 versus filing at age 70 (FRA of 66), the break-even occurs at age 84 — considerably later than age 80. The break-even for the decision to file at age 68 versus age 69 occurs at age 82.

What to remember: The year-over-year break-even point varies, depending on which Social Security filing age you’re considering. If the two options are earlier (before FRA) the break-even point occurs before age 80. If they are both at or around FRA, then the break-even occurs right around age 80. But if the Social Security filing age you’re considering is near age 70, count on the break-even point being much later, as late as age 85.

Social Security’s future

My Comments: Followers of my comments know that I’ve talked in the past about how to fix the projected ‘crisis’ of the Social Security system. I remember the last one, and in 1983 it was fixed. At least for the time being.

What happened then was the upper threshold of income subject to what we all think of as the FICA tax was raised. In other words, if your income was higher than the earlier threshold, you continued to contribute to the system. In addition, the percentage of that income, paid by both you and your employer was raised.

We can argue until the cows come home that all that does is create job losses, and there are those who will lose their jobs. But think back to the years since 1983 if you can, and tell me that the increase I referenced in the above paragraph caused any significant economic turmoil in these United States.

Now think about the economic turmoil that will happen if 50 million people suddenly lose 21% of their income. Talk about job losses if that much money suddenly stops flowing to grocery stores, restaurants, gas stations etc.

But given the nature of politics, the fix won’t happen until the crisis happens within the last election cycle of those we elect to Congress. It’s another reason to make sure as many people as possible are registered to vote. If you are likely to be affected in some way by the 20% drop in Social Security benefits, you need to pay attention.

Sean Williams, The Motley Fool Published 10:00 a.m. ET July 9, 2018

To be frank, Social Security is a financial foundation that millions of seniors simply couldn’t do without. According to the Social Security Administration, more than three out of every five aged beneficiaries lean on the program for at least half of their monthly income, with just over a third essentially reliant on the program for all of their income (90 percent or more).

Furthermore, the Center for Budget and Policy Priorities finds that its mere existence keeps more than 22 million people, including 15.1 million seniors, above the federal poverty line. We’d probably be contending with a genuine elderly poverty crisis right now if not for the guaranteed monthly payout associated with Social Security to eligible beneficiaries.

Big changes are underway for America’s most important social program

But therein lies the rub: This guaranteed payout is in some serious trouble. While Social Security is in absolutely no danger of going bankrupt — which means current and future generations will receive a retired worker, disability, or survivor benefit, should they qualify — it is on the brink of a major transformation.

The latest annual report from the Social Security Board of Trustees finds that America’s most important social program will begin paying out more in benefits than it collects in revenue this year. In each year thereafter, with the exception of 2019, the net cash outflow from the Social Security is expected to increase. By 2034, the $2.9 trillion in excess cash that has been built up since the reforms of 1983 were passed are expected to be completely gone.

What happens then, you ask? Again, it doesn’t mean the program is bankrupt. But it does clearly demonstrate that the existing payout schedule isn’t sustainable. Assuming no additional revenue is generated above and beyond the intermediate-cost model projections from the Trustees report, an across-the-board cut in benefits of up to 21 percent may be necessary to sustain payouts (without any further cuts) until the year 2092.

Considering how dependent today’s senior citizens are on Social Security, the thought of a 21 percent reduction to benefits is frightening. As a reminder, the average retired worker is only receiving $1,412 a month, as of May 2018. This would push the average payout down to just $1,115 a month, using 2018 dollars. For added context, the federal poverty level for an individual on a monthly basis in 2018 is approximately $1,012.