Q & A
Ask Rusty – Will Social Security Be There for Me?
Dear Rusty: I am 56 and hope to hold out to get maximum Social Security at age 70. However, with all of the talk of Social Security funds being depleted, is it wise to continue with this mindset? Will there even BE Social Security benefits for folks in my age bracket? Should I think about starting Social Security benefits as soon as I am eligible? I am employed; however, I don’t have a large amount of savings. I contribute to my company’s 401(k) and receive the match, and I own my own home (almost paid off) with an estimated $250,000.00 in equity, but I won’t be able to stay in the home long term. Any insight you can provide would be greatly appreciated. Signed: Weary Worker
Dear Weary Worker: I don’t suggest changing your strategy due to fears of Social Security not being there – it will be. Although the program is facing some future financial issues, the very worst that could happen is that everyone’s benefits might be cut by 20+% if Congress fails to act to restore the program to solvency before the Trust Funds are depleted in the early to mid-2030s. In my opinion, Congress will not likely fail to act because to do so would be political suicide. The fact is, they already know how to fix Social Security’s financial issues; they just lack the bipartisan spirit and political fortitude to do so until they extract every possible ounce of political capital from the issue. So, it’s largely a matter of how long Congress will wait to reform the program.
Right now, the Social Security Trust Funds hold about $2.8 trillion in reserves to ensure full benefits will be paid. But Social Security now pays out more in benefits than it receives in revenue, so the extra money needed to pay full benefits is taken from those reserves. What is needed is reform which addresses the reality that people today are living much longer and collecting benefits for much longer than the program is structured to accommodate. Many possible solutions are on the table in Congress, including raising the full retirement age a bit to deal with the reality of people living much longer, and increasing the program’s tax revenue by withholding a bit more from American workers. The eventual reform will likely include some variation of both, as well as other “tweaks” which further guarantee the program will be there for future generations.
As for the thought of claiming your benefits as soon as you are eligible (age 62), be aware that Social Security has an “earnings test” which applies to anyone who collects benefits before reaching full retirement age (FRA). If you are working full time when you first become age-eligible, you likely wouldn’t be able to collect benefits because your benefit amount would be insufficient to pay the penalty for exceeding the earnings limit ($1 for every $2 over the limit) within one year. And, as you may already know, your age 62 benefit would be cut by about 30% from your FRA amount, while your benefit at age 70 would be about 76% more than your age 62 benefit.
So even if the worst case scenario happens (which it almost certainly won’t), an across the board cut of 20+% to your age 70 benefit would yield a higher monthly payment than that same cut to your age 62 benefit amount. So, I suggest you stick with your current strategy to continue working and wait as long as practical to claim your benefits (up to age 70). As an aside, AMAC (Association of Mature American Citizens) has, for years, been proposing (to Congress) its “Social Security Guarantee Plus” which would restore Social Security to solvency for generations to come. and would not require an increased payroll tax rate. Congressional reaction has been generally positive, leading us to be hopeful for a reasonable solution to the problem.
Congress must act now & quit kicking Social Security funding down the road. I do not think they should increase retirement age more than 67, but take a look at raising Medicare to age 67. Get rid of the ceiling on FICA wages & make companies & employees pay FICA tax on total wages even if it is millions. Lastly, start small increases in both FICA & Medicare taxes maybe every 3-years & do not wait as long as they have this time. And now, the most important item is do not let POTUS or Congress roll the SS fund in to General Fund or it will just get lost in Black Hole & they will say did not cut these benefits, but it will end up being paid by debt funding.
John,
There are many who believe they have the solution to Social Security’s future financial dilemma, but unfortunately the problem is actually rooted in two main factors – 1) average life expectancy has increased dramatically over the decades since Social Security was first enacted – the program which was designed to pay benefits for a only few years now pays benefits for decades. And related, the number of people collecting Social Security is growing faster than the number of workers contributing to the program. Social Security now pays out more in benefits than it receives in revenue, and the Trust Fund reserves are needed to pay full benefits to all.
The reserves are forecast to be depleted in about 2035 and that would require an across-the-board benefit cut for everyone. You are correct – Congress must act soon to avoid this from happening. They already know how to fix it, they just currently lack the political will and bipartisan attitude needed to do so. AMAC has proposed a way to restore Social Security to solvency without increasing payroll taxes which is being promoted to and well received by Congressional Representatives. You can see AMAC’s proposal at this link: http://www.amac.us/social-security. Thank you for your feedback; it is very much appreciated.
Russell Gloor
National Social Security Advisor
The AMAC Foundation