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Social Security Myths and Facts

It is never too soon to plan for the future. Patrick addresses Social Security issues in this week's column.

There is much to know about social security and what the future holds

Each generation has different trends and traits about how they live, and what is important to them.  However, for  baby boomers and the millennials, depending on Social Security retirement income is a fact of life.

When should I draw my Social Security? The far-reaching effects of decisions

You must work 40 quarters, or 10 years, to be eligible to draw Social Security in retirement. Your payment is calculated on your highest 35 years of income, no matter which years those may be.  Currently, you may claim SS at the age of 62, which is the current trend with the baby boomers ( those born between 1946 and 1964). However, that may or may not be the best option for you or your family.

There is a large penalty for taking Social Security early, prior to your full retirement age, which is between  age 66 and 67 for most people. That penalty can be approximately 28% at age 62, and you will suffer the lower SS payment for the rest of your life. As comparison, waiting past the full retirement will earn you a bonus of 8% a year added to your lifetime SS benefit. The bonus can be earned for every year you wait past age 62 to begin drawing SS, up to 70 years of age.

Also, claiming your benefits while still working can cause you to suffer severe penalties, which will lower your SS benefit amount, based on certain income restrictions and age.

Social Security has many strategies, and with so much at stake, careful planning is required to avoid making wrong decisions. Many of these decisions cannot be reversed.

Will it be there when I need it? The future for Social Security funding

What does the future hold for Social Security?  Currently, the Social Security Trust Fund can pay all benefits to about 2034, and then income to the fund can pay about 76% of all benefits through about 2080. Therefore, it is upon the U.S. Congress to address necessary changes to fix the problem.  Some possible changes that have been suggested by the SS Administration and others include:  raising the SS tax paid by both employees and employers;  raising the level of total income of each worker subject to the annual SS tax; raising the full retirement age from 67 to 68-70 years of age; changing benefits for younger generations.

Many people ask how the SS Trust Fund got into this situation. There are multiple answers,  of course,  but here are a few.  First, Social Security was designed for retirement, but it has evolved into funding survivor benefits, spousal benefits, and disability.  Another key factor is that the life expectancy at the time of Social Security’s establishment was about 64 years, while today our life expectancy, on average, is about 83 for men and 87 for women.  Therefore we are drawing benefits for longer periods of retirement.

Additionally, there is a demographic issue related to birthrates and workers paying into the SS trust fund.  In 1960, there were approximately 5.1 workers paying into the fund for each 1 person drawing benefits.  By 2009 that ratio dropped to 3 workers paying for each 1 drawing benefits, and it is projected that by 2030 there will be only 2.1 workers paying for each 1 drawing benefits.

For many people change is difficult, but our world has changed greatly since Social Security was created in 1935. Now our congress must address the required changes  necessary to fix the Social Security funding problem, even though those changes may be painful.

Do you have questions or concerns about retirement?  To ask Patrick, you may either use the NAnewsweb’s T.C.B.page to ask confidential questions, or share your comments with the public by using the comment space below.

2015-3

Patrick McDowell

Investment Advisor Representative

www.radianpartners.net

901-202-3909

Information Sources:   SSA.gov;  Broadridge Investor Communication Solutions; ebri.org

 

*Securities, Insurance, and investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC.   Radian Partners is not affiliated with FSC or registered as a broker-dealer or investment advisor.

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