Social Security Planning

We’ve been told most of our lives that Social Security would be out of money before we were old enough to retire. Now 10,000 people retire every day, and they’re receiving it. What’s the truth?

Social Security operates like a pension plan. The Social Security Administration calculates your retirement benefit by taking an average of your highest 35 years of earnings, adjusted for inflation. If you don’t have 35 years of covered earnings, it uses zeroes for those years. What is your projected benefit from Social Security? If you don’t know, go to , log in and find out.

Social Security replaces a larger percentage of lower-paid workers’ income than higher-paid workers’. For example, a $10,000 a year worker would receive a benefit of about $9,000 (90% of average income). A $70,000 a year worker would receive about $27,000 (38%). This means that the more you earn, the more responsibility you bear for providing for yourself in retirement.

A big surprise for many retirees is that Medicare isn’t free. Part B, which pays physicians and out-patient services, costs about $1,600 a year.  There are also potentially unlimited co-pays and supplemental Medicare insurance costs to consider.

The age at which one qualifies for full social security retirement benefits has been rising gradually. For those born from 1943-1954 it is 66. For those born from 1955-1959 it will increase 2 months per year before reaching 67 for those born in 1960 and later.  If a person claims Social Security early and continues to work, the benefit will be reduced by $1 for every $2 earned beyond $16,920 a year. If you plan to continue to work, it usually doesn’t make sense to file for benefits before full retirement age because of this earnings penalty.

Social Security offers a spousal benefit that is the higher of one-half of the higher-earning spouse’s benefit or the lower-earning spouse’s own benefit. It also allows anyone to retire as early as age 62 for a benefit that is permanently reduced by as much as 25%. Depending on the ages of the spouses and their relative earnings, it makes sense to take this into account. There is also a widow’s or widower’s benefit that can be claimed as early as age 60.

If a person chooses to delay receiving Social Security, benefits increase by 8% for each year until age 70.

Based on their most recent reports, the Social Security Trustees and the Congressional Budget Office predict an across-the-board Social Security benefit cut for current and future recipients of 23%-29%, beginning between the years of 2030 and 2034, when the Social Security Trust Fund runs out.

Unfortunately, according to the U.S. Government Accountability Office, the Social Security Administration provides key claiming information on its website, but not consistently during the claiming process. With all of these complexities and moving parts to consider, it makes sense to seek outside advice when deciding on your permanent claiming strategy.