A regular topic of discussion between clients and personal financial strategists in West Palm Beach is Social Security’s role in retirement planning. There’s a lot of confusion about how one should view these payments in the context of their retirement fund. To add to the uncertainty, the Social Security Trust Fund is about to undergo some significant changes.
With that in mind, let’s take a closer look at how you should be thinking about social security and the implications of the pending changes.
The Social Security Administration is a United States federal agency in charge of social insurance programs, including Social Security payments, disability, and survivor benefits. Social Security was created to ensure the financial security of Americans (specifically the elderly and disabled).
Throughout your life, part of your taxed income goes to the Social Security Fund, and once you reach the age of 65, you are eligible to receive payments. The Social Security payments will replace a portion of your annual earnings.
Some people don’t put too much stock on retirement planning because they assume that Social Security will cover their financial needs. However, one conversation with a personal financial strategist in West Palm Beach will help you realize that Social Security should be seen more as a supplement than as your only retirement option.
Social Security payments are based on a percentage of your earned income, and the amount the agency pays out has been steadily declining over the years. Depending on your standard of living and expected retirement expenses, relying on these payments may simply not be enough to sustain you. Ideally, Social Security should offer a baseline of income to a more comprehensive retirement strategy.
As the Social Security Trust Fund approaches its expiration date, many existing entities offer helpful suggestions for funding alternatives. For example, the Association of Mature American Citizens (AMAC) recommends a combination of changing how the cost of living adjustments are made, delaying retirement age, and updating the delayed credit strategy. Among its proposals, the AMAC also advocates establishing a new “Social Security Plus” account — a personal retirement savings account that begins paying out at age 62. Specifically, this account would:
Alicia Munnell, director of the Center for Retirement Research at Boston College and a respected individual in the retirement income field, advocates a long-term approach to solving the pending Social Security shortfall. While she does not support cutting benefits, Munnell believes that the only way to fund full benefits for the next 75 years is to raise current payroll taxes.
Those who have already retired are less likely to be affected by changes to the Social Security system than those currently preparing for retirement. It’s essential to have your own plan for an independent retirement income stream, separate from government benefits, to ensure your needs will be covered. If you do not, please reach out to one of our personal financial strategists in West Palm Beach to learn more about current income vehicles that can help secure your financial future.
In a recent proposal for funding Social Security, President Biden posed:
Biden proposes paying for benefit increases by levying FICA taxes on workers who earn more than $400,000 a year. Other proposed ideas include imposing FICA taxes on income above $142,800 (which is currently the limit for this tax), gradually increasing the payroll tax rate from the current 12.4% to 14.8%. This reduces benefits for those with higher lifetime incomes, decreasing cost-of-living adjustments and limiting benefits for spouses and children of higher-income earners.
Those are all options that, in some form, may likely change the future Social Security landscape. Those nearing retirement can now utilize a couple of strategies that may not be as lucrative once proposed changes are made.
One option is the delayed credit that accrues if you wait until age 70 to draw benefits. Now that people live longer, this accrual strategy, which was implemented by the Social Security Administration back in the 1950s, produces a substantially higher advantage for retirees who delay drawing benefits and then live to a ripe old age.
In fact, waiting until age 70 can make lifetime benefits worth 76% more than claiming them at age 62. This actuarially enhanced perk is available only until benefits are adjusted to match today’s longer life expectancy.
Also, be aware that widows and widowers do not necessarily have to wait until age 62 to begin taking Social Security benefits based on the earnings of an eligible spouse who passed away. A surviving spouse can start drawing the deceased spouse’s benefit at age 60, then switch to their own benefit later (if higher). They can even wait until age 70 for the delayed credit and begin taking the enhanced benefit at that point.
Social Security has been a point of contention in Congress for several decades. The proposed changes to the agency are intended to safeguard the benefits, but without substantial bipartisan support, the future is bleak for those expecting to retire after 2035. Those concerned about the outcome of these legislative proposals are encouraged to consult with their personal financial strategists in West Palm Beach to create an actionable retirement plan.
Legacy Financial Partners offers a team of financial experts with decades of experience in the field. We can help you plan for your future and create contingencies to protect your income from unexpected legislative or economic changes. Give us a call today and learn more about our financial services!
Content prepared by Kara Stefan Communications. Edited and Optimized by Digital Resource.
1 Association of Mature American Citizens. 2021. “The Combined Social Security Guarantee and Social Security Plus Initiative.” https://amac.us/social-security/. Accessed March 30, 2021.
2 Jane Wollman Rusoff. ThinkAdvisor. March 14, 2021. “Alicia Munnell: Biden’s Social Security Tax Hike Plan Falls Short.” https://www.thinkadvisor.com/2021/03/19/alicia-munnell-bidens-social-security-plan-falls-short/. Accessed March 30, 2021.
3 Bob Carlson. Forbes. Feb. 22, 2021. “Changes Must Come To Social Security.” https://www.forbes.com/sites/bobcarlson/2021/02/22/changes-must-come-to-social-security/?sh=50094aa115e4. Accessed March 30, 2021.
4 Investopedia. Dec. 21, 2020. “How Much Can I Receive From My Social Security Retirement Benefit?” https://www.investopedia.com/ask/answers/102814/what-maximum-i-can-receive-my-social-security-retirement-benefit.asp. Accessed April 14, 2021.
5 Social Security Administration. 2021. “Receiving Survivors Benefits Early.” https://www.ssa.gov/benefits/survivors/survivorchartred.html. Accessed March 30, 2021.
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