It's not quite time for a five-alarm fire, but with the announcement last week that the Government will have to dip into the Social Security reserve fund for the first time since 1982. That's 36 years! The trustees who oversee the Social Security Benefit Program said that Medicare's hospital insurance fund will be depleted by 2026 and Social Security trust fund will dissipate by the year 2034. So, what does that mean to us? Does it mean, no Social Security? Reduced Social Security? Pay more money into the system? Privatize the system? Extend the normal retirement age?
All of these are potential outcomes, but just because the Social Security trust fund completely depletes it doesn't mean Social Security won't still be there. It's estimated that by 2034 if nothing is done to the system, the tax revenue collected will only be able to fund somewhere between 75% to 80% of today's benefits. This means, you can be sure changes are coming down the road one way or another.
Since Social Security only mails you a statement once every five years, you might want to set up an account on www.ssa.gov/myaccount and check this account yearly. Often, there are record keeping mistakes of your actual wages and according to ssa.gov you only have 3 years, 3 months, and 15 days to correct these mistakes or Social Security doesn't necessarily have to change them for you.
Also, remember that you need to get 40 quarters of earned income to even qualify for Social Security. Today, one quarter is $1,320 of earned income and I'm amazed at how many people don't look at this until it is too late.
You also want to do a thorough analysis about when is the best time to actually take Social Security, especially in light of what may be happening to benefits down the road. If you choose to take your benefits early at the age of 62, remember that you will get a reduced benefit. However, the more potentially onerous penalty is that if you continue to earn money after you start receiving your reduced benefit the amount of money you earn matters. In 2018, if you earn more than $17,040 of earned income, every $2 you earn above the $17,040 number will cost you $1 of your Social Security benefit. Whether or not you will continue to work actually becomes a big determination about when you will take Social Security.
On the flip side of the equation, you also get rewarded to take your benefit at a later age. This year, 66 years and 4 months old is the 'normal retirement age', but for people who were born 1960 and beyond the normal retirement age scales up to the age of 67. For every year you delay your full Social Security benefit, you will get an 8% bump in your monthly amount, which means if you wait until the age of 70 you will be roughly in the 130% amount of your full retirement age Social Security benefit.
As I analyze the numbers, it is likely in my opinion that those born after a certain date (say 1980) will have a normal retirement age of 70 which makes sense because people are living longer these days and Social Security was never intended to be a long-term income stream when it was designed. It won't surprise me at all that people over a certain income level (say $250,000) either won't collect their Social Security benefit or they will get a substantially reduced/phased out benefit. The last piece is the possibility of the FICA (Social Security tax) becoming a perpetuity tax just like Medicare tax is today. Social Security could phase out cost of living adjustments, although I don't see this as likely as a scenario.
As it stands for your financial plan today, you might want to consider re-running your financial plan using only half of your Social Security benefit rather than the full amount. If you are wrong, it will only add gravy to your plate. If you are right, you will have planned well and still enjoy a comfortable retirement despite the fact that you won't collect your full Social Security.
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