According to the Social Security Administration, nearly 62 million Americans are receiving some type of benefit from the program as of April 2012. There is much speculation as to where the program is headed in the future. Unfortunately, there’s little more to report on long term changes than mentioned in my July 2011 blog on just that topic. The broken record remains the same. If you’re over 55, you’re likely to see your full benefit. How that benefit is taxed, whether or not it is means-tested in some fashion and what’s to come of the program for the rest of us remains to be seen.
That said, there are sufficient changes surrounding Social Security in the here and now that justified an update.
Analytical Tools Multiplying
With 10,000 baby boomers reaching age 65 every day, it’s no surprise that a large number of tools have started to sprout up promising to help analyze how to maximize your benefit. These tools vary in their level of sophistication, but most ultimately come down, as all financial planning does, to making educated guesses about a number of variables. Despite much of what’s written out there, the decision as to when to draw social security is often much more than just picking age 62, 66 or 70.
The basic rule of thumb is simple. If you expect to live past age 80 or so, depending on some other factors, it’s best to wait as long as you can to draw your benefit. But, that comes with a number of caveats. It’s impossible to touch on them all, but the biggest gap we see in these tools is the ability to translate what’s best purely from a Social Security standpoint to how the timing of your benefit impacts the overall portfolio.
Does drawing later for a higher benefit cause too much strain on your portfolio in the early years of retirement? Is giving in to the emotional pull of starting benefits sooner costing you potentially hundreds of thousands of dollars in benefits down the road? We have the ability to look at these tools as they relate to your overall plan and help make that decision about when to turn on benefits as educated a choice as possible.
No More Statements
As you may have heard, an effort to reduce spending on postage, paper and impact to the environment has led the Administration to cease mailing out annual statements. In response, they’ve added a new online offering called “My Social Security”. The program allows you to create your own login and retrieve the same information reported on your annual statement at any time. The website can be found here, or we’d be happy to walk you through the process in our next meeting.
No More Paybacks
Another slightly older bit of news that wasn’t very widely covered is the closing of the “payback” loophole. In the past, you could elect to start your benefit early and then, at any time before age 70, “cancel” your election, payback what Social Security had paid you to that point and then restart your benefit at the new, higher rate. This was essentially an uncollateralized, non-interest bearing loan from the government. That option has since been removed and is no longer a tool to use in determining the best outcome for you and your benefit.
Stories continue to emerge about various other Social Security “loopholes” that are likely to be closed as Congress continues to find every way they can of extending the program without upsetting the electorate. One story that’s arguable an illustration of what’s wrong with the system was one I recently came across in Investment News. Dependent children under a certain age are eligible for benefits of up to ½ the amount of the recipient. This rule was largely intended for parents receiving Social Security for disability or widow/widowers’ benefits or for those having to care for dependent grandchildren. The unintended consequence is that, in this day and age, more and more fathers in their sixties have young children. Until the loophole is addressed, Mary Beth Franklin of Investment News recommends anyone eligible take the benefit and use it to fund the child’s 529 plan. She coins the strategy “The Viagra College Fund.”
We’ll continue to monitor this and all the topics we cover here that can have a meaningful impact on your life and financial goals. If you have any questions or wish to discuss further, don’t hesitate to contact us via the links below.
Thanks and have a great week!
Chip Workman, CFP®