Social Security is a topic that seems to interest every retiree and it should. For many Americans it is their single largest retirement asset. Depending on how much you have accumulated for retirement, Social Security can make up a sizable percentage of your monthly retirement income. For a married couple, there are a number of ways to approach claiming Social Security. The choices can seem daunting and complex, but let’s make it simple.
First, some history… Social Security was created in 1935, but was certainly not the first social insurance program. The idea at the time was to provide support for the elderly and the disabled who were no longer able to work. The life expectancy in the United States in 1935 was 59.9 years for a male and 63.9 years for a female and the benefits were paid when a person turned 65. If benefits today started 5 years after life expectancy, then we would all be waiting until our 80s to start collecting.
You will hear people say that Social Security is “insolvent.” Old-age benefits paid by Social Security reached around $743 billion in 2015. That number grew to over $1.5 trillion after including disability, survivor benefit and healthcare. That’s a lot of money and with people living longer and more retiring daily, relying on Social Security for your retirement seems foolhardy.
Before you go discounting your Social Security to zero let me give you a few counterpoints to consider:
There are a number of proposals that provide solutions to fix the problem with Social Security. Any solution likely involves paying benefits later in life or reducing and or eliminating benefits for families with high income.
When these changes occur, they will likely be done in advance and affect people who are not close to receiving benefits. The reason is simply that people who collect Social Security also vote. Politicians do not want to lose votes because they took away voters’ Social Security benefits.
The government has the ability to print more money. However, we will save that discussion for another time.
If you are trying to decide when to take Social Security, here is what you need to know. Begin by setting up an account online at ssa.gov/myaccount. The website will then provide your estimated monthly benefit at full retirement age. This is also called your “Primary Insurance Amount” or “PIA.”
In order to analyze the best Social Security claiming strategy you need two things:
- Your date of birth
- Your PIA
A better analysis can be done if you also know your date of death, but obviously you don’t know when you will die. However, if you have an idea about your life expectancy, it can help guide you through the process.
Once you collect these, share this information with us and we will run the numbers. It is very easy for one of our planners in the office to analyze this. Just provide your date of birth, PIA and your opinion about how long you might live.
For most people we suggest waiting to claim until they are older. As most of you know, each year you wait your benefit goes up. In previous emails I’ve talked about longevity risk, which is the risk that you live too long. You are helping offset this risk if you wait to take Social Security. That higher Social Security benefit will be with you as long as you (or your spouse in some cases) live.
Never listen to anyone who tells you about the break-even age on Social Security. Break-even is the age you have to live to in order to get the amount of Social Security that you could have had if you took it earlier. If you hear something like, “If you don’t live to be 85, you would have been better off taking it early,” the proper response is, “Well if I don’t live to be 85, I’ll be gone and so I won’t regret anything. If I live to be 95, I will be very alive and regretting taking that check too soon.”
Every Social Security situation is unique and some families do have more complex issues. Divorce-related benefits, disability benefits or one spouse working during retirement can complicate the analysis.
Bottom Line: Social Security is likely to be around in some form for a long time. The analysis is easy. Let us help you and don’t be surprised if we tell you to wait.
From the desk of Kris CarrollSocial Security