5 Questions Answered: Social Security Retirement Benefits

  1. How is my social security calculated?  Social Security is calculated using your 35 highest paid earnings years and then averaged using the benefits calculation formula.  You must have worked full time for at least 10 years to qualify for any social security retirement benefit.  Currently, full retirement benefits age is between age 66 and 67 (October 2018). More adjustments by the Social Security Administration for the full benefit payment age are anticipated affecting calculations for those born after 1967.  To see what your payment may be based on your age visithttps://www.ssa.gov/benefits/retirement/
  2. Will Social Security Be There For Me?  Social Security will pay promised benefits through 2033.  After that it will pay about 75% of benefits.  Options to raise taxes to cover this shortage or to decrease benefits after 2035 are being discussed. American workers currently employed pay for those currently receiving benefits; benefits paid into Social Security are not ‘banked’ for an individual’s future use.
  3. What is Social Security? A Retirement Plan?  Social Security is considered insurance and was proposed by President Roosevelt and Congress and signed into law in 1935.  It was never intended to be enough to completely fund retirement for individuals but meant to supplement an individual’s retirement investments and savings.
  4. How do I file for Social Security Retirement Benefits?  You can file by visiting an office, by calling (800) SSA-1213, or online at www.ssa.gov. You can file up to 4 months before you want payments to begin.
  5. Can My family receive benefits upon my death for certain situations?  If you die your surviving spouse can be paid up to 100% of your payment if they are at least Full Retirement Age or receive a reduced amount as early as age 60.  An individual can be paid 75% of your benefits at any age if they are caring for your child under age 16.  Your unmarried child can be paid 75% of your benefits if they are under 18, under 19 and in high school or at any age if they were permanently disabled before age 22.  Your parent over age 62 can be paid your benefits if they were dependent upon you.

The continuation of Social Security Retirement benefits after 2033 continues to be a hot topic as the U.S. population ages and younger generations continue to decline in population. Fewer Social Security taxes paid into the Social Security system will continue to impact future payments. Individuals reaching full retirement age after 2035 may want to consider contributing more to their after-tax and pre-tax retirement accounts or purchasing a fixed annuity as a replacement for decreased or lost Social Security Retirement benefits.

The Great Wealth Transfer

Over the next twenty years, there will be a wealth transfer that exceeds $30 trillion as the Baby Boomer generation passes the remainder of their wealth to the Millennials and subsequent generations.  The Baby Boomers (born 1946-1964) are considered the wealthiest generation, currently controlling 70% of all the disposable income in the United States. Its imperative families develop a plan to transfer assets since the transfer of wealth is inevitable.  For most families, the transferring wealth was acquired during this lifetime and not inherited from the previous generation.

When starting to plan for wealth transfer pre-retirees should prepare for their retirement first, healthcare costs second, and the remaining transferring assets last.  Although some individuals choose not to involve their family members that will become the beneficiaries of their assets, including qualified tax and legal professionals are important.  But don’t write off including your heirs in all aspects of wealth transfer planning if you’d like more than just one generation to benefit.

Preparing your heirs to take over your estate eventually passing their remaining assets on to their beneficiaries is equally important.  Heirs that are unprepared in managing money, investments or seeking financial guidance from qualified professionals seldom have enough inheritance left over for their heirs.  Some families choose to ‘train’ heirs by teaching how to wisely invest so they can give some away through philanthropy.  Without financial education, frequent investment decision making and a purpose to preserve the inherited wealth, many estate transfers rarely survive.  The complexities of wealth preservation are not taught in school or other institutions and can only demonstrate through modeling, professional guidance, and the generation’s intention to pass their wealth forward.

If the generation set to inherit from the Baby Boomers does a good job preserving what they inherit, it’s possible it could easily provide financial benefits to others for the next thirty to forty years.  And that’s worth planning.

As financial advisors, we spend a lot of time preparing for building wealth, but not passing it on to subsequent generations.  If you would like guidance on The Great Wealth Transfer and my working with your beneficiaries, I welcome a meeting with all of you.

Social Security Retirement Benefits: Why Waiting May Be the Best Decision

Taking Social Security Benefits can be a guessing game unless you do your research to figure out what age to take benefits the best for you.  Do you receive benefits at the earliest age or wait until your full benefit age?  Will you die in early retirement or live a longer life than you imagined?  These are the challenging questions many pre-retirees ask because it can add up to thousands of dollars over your lifetime.  Most people want to get their benefits sooner than later, not realizing that the odds are in their favor for living longer than they thought.  Pre-retirees need to plan for the long-haul, or so to speak each generation, on average, is living longer than the previous.

Finding out your ‘break even’ age for Social Security is important to determine what age is best to start taking benefits.  Once you make the decision and start benefits at a specific age, you can’t change your decision since it is essentially ‘locked-in’ for life.  Benefit amounts will not increase, aside from the occasional small cost of living increases.

The best way to determine when to start taking benefits is by running a break-even analysis to find your break-even benefit age.  The break-even age is when an individual’s total lifetime Social Security benefits received would be equal to the benefit amount, but using a different claiming age.  When doing your pre-retirement income planning, the break-even analysis is a crucial piece of information to consider.

Deciding to start Social Security benefits at the first opportunity or delaying benefits is a personal decision.  Factors to consider are other retirement assets available and their value, genetic health factors, and outstanding debt and lifestyle considerations.  If you would like more information on social security benefits and implementing it into your financial plan along with other assets, contact our office for a meeting.