Social Security and the Mayan Calendar

Last week’s 2012 Social Security Trustees’ report shows a significant increase in the program's deficit and an expected fund exhaustion estimate moved up three years from 2036 to 2033. 

Secured Retirement Advisors is intentionally unique, specializing in the financial planning issues of families in and nearing retirement.  So, when the Social Security Trustees drop bad news, like they did last week, our phone lines tend to get more active with questions of concern from our clients. This report, however, is not a shock to anyone who has followed this issue. The numbers have been trending worse for several years.  In 2010 the Financial Commission which is co-chaired by Senator Alan Simpson & Erskine Bowles, authored a report recommending several significant changes to extend the long-term viability of Social Security.  These proposed changes included increasing the age to qualify for Social Security, along with reducing benefits in the future for higher earners.   As constituents, this report should incite us to contact our elected officials, asking that they begin making some tough political choices to keep the system intact.  As a family entering retirement, you should continue to make smart choices about how you coordinate social security planning with your retirement income planning.  Failure to do so will likely result in planning errors as damaging as planning your retirement around the Mayan Calendar which predicts doom by the end of the year.

Let’s begin by putting the Social Security Trustees’ report in perspective. Because Social Security was designed as a “pay as you go” program, even if the funds were exhausted today, there are still enough active workers to ensure that at least 75% of the entitled benefits would continue. Good news? Maybe not, but today’s retirees and near retirees should feel confident that they will continue to receive the lion’s share of their promised benefits.

One solution is offered in a report from the Center for Retirement Research at Boston College which states, “Social Security’s 75-year deficit is significantly higher than that reported a year ago: 2.67 percent versus 2.22 percent of taxable payroll. The increase is due to some adjustments in starting values due to the effects of the weak economy, some changes in ultimate assumptions, and the impact of moving the projection period forward by one year to include a year with a large deficit.” It continues, “These figures mean that if payroll taxes were raised immediately by 2.67 percentage points – 1.34 percentage points each for the employee and the employer – the government would be able to pay the current package of benefits for everyone who reaches retirement age at least through 2086.” While I am not extremely excited about the real possibility that Congress may find it necessary to raise payroll taxes, I also don’t particularly like visiting my dentist to have a filling replaced. But in the same way that not taking care of the filling would surely result in the loss of the entire tooth, not addressing the current Social Security projections will likely result in far worse consequences. I am hopeful that our elected representatives will eventually make the hard choices needed to keep this entitlement in place.

So continue to make smart personal decisions around social security and how it coordinates with your overall financial plan.  Think about how you can maximize your Social Security benefits in light of an unpredictable future.  I was quoted by Mary Beth Franklin in an article this week for  Investment News, offering strategic advice for maximizing your collection of social security: “For some married couples, it may make sense for the lower-earning spouse to collect reduced benefits early at 62 to bring some money into the household and the higher-earning spouse to delay collecting until 70 when benefits are worth the maximum amount, ensuring the largest possible survivor benefit.” Even if there were some social security benefit reductions to existing beneficiaries, wouldn't it be preferable to cut back from a higher benefit than a lower one because you started collecting too early?

No matter how large your portfolio, social security election planning mistakes will last a lifetime and these crucial entitlement decisions are complicated. Most people near retirement are familiar with only two rules of social security. The first is that the longer you wait, the larger the monthly check and, the second is that one must be present to win.  These rules, however, shouldn’t be and don’t need to be followed by everyone. Social Security benefit elections made without a good plan can create substantial loss of benefits.  

If you were to continue a poor financial decision based on the Mayan Calendar, spending all of your retirement savings today, you would find out by the end of this year if it was a mistake. My thoughts are that those who are rushing in today to collect what they can will find out that they have left significant money on the table some years down the road.

This is just one example of the good financial strategies that are available to you when you partner with a knowledgeable professional like those at Secured Retirement Advisors. In order to help you with these and many other decisions, we have recently updated our website and now offer many FREE downloadable resources which including our “Social Security Decisions Guide” which can help answer many retirement questions. Feel free to visit us at www.securedretirements.com and help yourself to our educational materials.  If you would like a complementary “3 Step Review” of your own retirement plan, call Secured Retirement Advisors at 952-460-3260.