Is Social Security Going Broke?
I have had several folks ask me that question recently. This morning I got a worried email from a client who saw an article that said the Social Security Trust Fund will be “insolvent” in 2034. She asked if she should claim her benefit now, instead of waiting another year as we had planned. I can totally understand her concerns, and I am sure many of our readers share this concern.
Let’s Look At The Facts:
- Social Security is the largest budget item for the Federal Government.
- 1 of every 6 Americans will receive a benefit from Social Security this year! That works out to 65 million folks.
- 50% of Married couples and 70% of single elderly beneficiaries receive 50% or more of their income from Social Security.
- By 2035 the number of Americans 65 and older will increase from about 56 million today to over 78 million.
- The amount paid in benefits will exceed $1 Trillion this year.
- Social Security is an insurance program, not a pension plan.
- Social Security benefits adjust each year to reflect changes in the cost of living.
- Social Security benefits are paid for your lifetime (and possibly your spouse’s lifetime as well).
Will You Get The Optimal Benefit When The Time Comes?
According to the Social Security Administration, about half of all folks who claim a benefit this year, will do so before their “Full Retirement Age” (FRA). There are a number of reasons for this, but doing so costs you money now and for the rest of your life.
I have done analysis to optimize peoples benefits vs. when they planned to claim their benefits and in many cases the difference is well into 6 figures! You might leave tens or hundreds of thousands of dollars on the table by making the wrong decision.
Here is an example of how this adds up. If you were born after 1959, your FRA is 67. You would be eligible to claim benefits when you turn 62 (nearly 31% of women and 27% of men currently are claiming at 62). If your FRA benefit would have been $2,000 per month, by claiming early your benefit would be reduced by 30%, so you would receive $1400 per month.
If you lived to 87, you would receive over $140,000 LESS by claiming at 62! If you waited to age 70 to claim, you would receive $2519 per month (your benefit goes up by 8% per year from 62 to 70). By waiting until 70, that number goes up to nearly $175,000!
Of course, these numbers don’t reflect the cost-of-living adjustments or survivors benefits. Also, remember this is for one person, if you have a spouse, or have been a higher earner during your working years, the numbers could more than double.
So, Will Social Security Become “Insolvent”?
The answer is no. If congress does nothing and the trust fund runs out by 2034, there will still be enough income to Social Security to limit the reduction in benefits to 25%. There are several bi partisan bills working through congress to solve this deficit. One bill would actually increase solvency and benefits for every participant.
For the client who wrote me today, I showed her that by waiting the next year, she would benefit significantly, especially if the worst case happens, and benefits are reduced in the future by 25%, she will still benefit by over $2,000 per year minimum.
What Is Your Optimal Claiming Strategy?
Most of the articles I see basically say the optimum would be to wait until one is 70 to claim. Heck, from what I outlined above, it would be understandable if you came to that conclusion as well. Since there are over 2700 rules in the Social Security Handbook, figuring out your personal optimal strategy isn’t as simple as waiting. Since our primary focus at GFIS is retirement income planning, we have studied these strategies extensively and have tools that can show you in real time, what your optimal strategy would be.
If you want to know, contact us and we can run the report for you. Mention this blog post and we will be happy to do that for no charge.
Roger holds the coveted and well-earned designations of Chartered Financial Consultant (ChFC®) and Retirement Income Certified Professional (RIPC®) from the American College. He is also a licensed insurance agent for life and health insurance and a Certified Paralegal for Estate Planning.