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Social Security:
One Size Does Not Fit All |
If one thing is certain about Social Security, it's that the questions will not end anytime soon. That's partly because of the uncertainty in the program as the Baby Boomer generation begins to retire. But it's also because, whether they are decades or days away from retirement, people need information to make smart financial decisions. And since each individual's retirement landscape depends on a number of variables, no simple chart can provide all of the answers.
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Who Is the First? |
The leading edge of the Baby Boomers are set to retire... we've been hearing that for a while. But who is standing at the front of the line, poised to be the first of their generation to collect Social Security benefits?
Born one second after midnight on January 1, 1946, Kathleen Casey-Kirschling applied for benefits online back in October. She is the official "first," as far as the SSA is concerned.
Some refer to the coming wave of Baby Boomer retirees as "the silver tsunami." Over the next twenty years, Casey-Kirschling will be followed by nearly 80 million Americans as they cross the threshold of eligibility. That amounts to more than 10,000 retirees per day, which is why the SSA has developed an array of online services. |
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Is Social Security on a Path to Bankruptcy? |
Experts say Social Security will probably not go bankrupt in the near future but it is in trouble.
In 2007, there are 3.3 workers for every beneficiary, according to the SSA Web site. But by 2040 that ratio will drop to 2.1 worker for every beneficiary. (In 1950, the worker-to-beneficiary ratio was 16.5-to-1!)
Because of the large number of Baby Boomers who will soon be receiving Social Security instead of paying in, SSA costs will exceed revenues beginning in 2017.
Ten years later in 2027, the SSA will still be paying benefits, but to meet the monthly payments, it will have to tap the principal in its savings account, also called the "trust fund."
Unless something changes, the trust fund will be exhausted by 2041. The depletion will be only partly the result of Baby Boomer retirement. Other factors include longer life expectancies and a shrinking birth rate. At that point, the SSA will be able to pay out only about 74 to 75 percent of the benefits that it expects will be due, based on ongoing receipts. | Every year, Social Security Administration (SSA) offices answer about 68 million questions by telephone and see 850,000 walk-in visitors. That does not even take into consideration inquiries on the Web site.
What do people want to know? Here are some of the most commonly asked questions:
"If I continue to work after retirement age, how will my earnings affect my Social Security benefits?"
The answer depends on what your full retirement age is, according to the SSA Web site, and when you will actually retire.
If you begin receiving Social Security payments before you reach full retirement age, you can earn $13,560 in 2008 before your benefits are reduced. Above that limit, $1 of Social Security benefits will be deducted for each $2 you earn.
In the year you reach full retirement age, there is less of a penalty extracted. For each $3 you earn above $36,120, you will lose $1 in benefits.
Finally, in the month you reach full retirement age, there is no longer a penalty.
"Can I calculate my own Social Security benefits?"
The SSA offers several calculators on their Web site.
Plus, there are other tools from the SSA that you might find helpful:
The Earnings limit calculator, to determine how earned income will affect your benefits.
The Break even calculator, to learn at what age the benefits of a person who retires earlier will equal the benefits of someone who waits until the full retirement age or later. To use this calculator, you need information from the Social Security statement mailed to you.
"At what age should I start receiving benefits?"
The answer to this question has generally changed over time. The assumption used to be that it was wise to start receiving Social Security benefits at age 62, even though your benefits would be permanently reduced by 25 percent. In that scenario, an individual who expects to qualify for a monthly benefit of $1,000 at full retirement age, can instead begin receiving monthly checks for $750 at age 62.
Today, experts are more likely to suggest waiting until you can get the maximum dollar amount, at age 70. Many people are still healthy and vital at that point in their lives. And with traditional pensions less promising than they once were, it often makes financial sense to work longer. Still... if you were expecting benefits to begin at age 62 or 65, waiting till you are 70 can seem harsh.
In general, married couples have more options for manipulating their Social Security income. For example, spouses can, in most cases, apply for benefits on their own records, or they can apply for spousal benefits, which are equal to half of the amount their spouses qualify to receive. Or, a couple can supplement their income by having one spouse file for benefits beginning as early as age 62. If the other spouse delays filing until age 70, he or she will then qualify for a much larger monthly check.
Then again, there may be better ways to maximize your Social Security benefits, depending on your circumstances. Take a look at this scenario:
Mr. and Mrs. Smith will both reach full retirement age at 66. Based on their earnings, she is expecting a monthly benefit of $2,000 and he is expecting a monthly benefit of $1,000.
If Mr. Smith begins collecting benefits at age 62, his monthly check will be reduced by 25 percent, for a net check of $750. Instead of collecting her own benefits at age 66 (her full retirement age), Mrs. Smith could file for spousal benefits, which would amount to half of her husband's unreduced, full-retirement-age benefit -- or $500.
At age 70, Mrs. Smith could then choose to stop receiving the spousal benefit, and apply for benefits based on her own earning record. Because she waited until age 70, her benefit would be higher by about 30 percent, for a total monthly check of $2,595.
This example was confirmed as a viable option by Dawn Heywood, the Public Affairs Representative for the Northern California area office of the Social Security Administration. "When individuals file for benefits before reaching full retirement age, they must first draw Social Security based on their own earnings records, rather than the earnings of their spouses," she explained, as in the example above. Because Mrs. Smith waited to receive benefits until she reached full retirement age, she was able to first draw spousal benefits, and later collect based on her own earnings record.
Clearly, the decisions of when to retire and when to begin collecting Social Security should not be taken lightly. Depending on the decisions made, two people with similar lifetime earnings can end up drawing much different total benefits.
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