Understanding Social Security Benefits
/When planning for your financial future, decisions around claiming Social Security benefits can be one of the most important financial considerations. We often hear questions from clients, and prospective clients alike, regarding their Social Security benefits.
When’s the best time to take my benefit?
Should I take it as early as possible or wait until I’m 70?
First, let's review how Social Security came to be, how we make decisions with clients on their Social Security benefit, and look into the future for the Social Security program as a whole.
In 1935, the Social Security Act was signed into law. This program was created in response to the Great Depression and providing some sort of an income stream to retired workers 65 and older. It should be noted that the life expectancy at birth in 1930 was only 58 for men and 62 for women. Increases in life expectancy are a factor in the long-range financing of Social Security; but other factors, such as the sheer size of the "baby boom" generation, and the relative proportion of workers to beneficiaries, are larger determinants of Social Security's future financial condition.
Over the years, there have been various amendments that have transformed the program into what it is today. Changes such as added benefits for spouses and minor children, benefits for disabled individuals, cost of living adjustments on payments, and the creation of Medicare in 1965. Today, one in seven Americans receive some form of Social Security, and when looking towards the retirement benefit specifically, it’s not inconceivable for individuals to receive a benefit for 20-plus years in retirement.
As we discuss Social Security benefits with our clients, there’s much more to the conversation than originally meets the eye. We begin by sitting down and getting a better understanding of their overall situation, including retirement goals and any additional thoughts and concerns.
We walk through various topics such as:
What benefits are they entitled to (personal, spousal or ex-spousal, etc.)
Family medical history and their own personal health situation
Their investment accounts and assets
Their income sources in retirement such as pensions and employment income (if someone decides to work while receiving benefits, we discuss how benefits may be reduced because of income)
Spending desires/needs in retirement.
Considering the specific situation of each individual, we can begin to analyze the optimal time to begin receiving their benefit. We ultimately visit with the client to find the Social Security strategy they’re most comfortable with and walk them through what they can expect with their payments (tax withholdings, Medicare premiums, etc.).
Will the Social Security program last until I retire?
One concern we hear from younger clients is regarding the program’s longevity and the benefits they’ll receive. With the number of retiree’s claiming their benefits rising and fewer people paying into the program, we certainly understand, but do want to reduce some of that concern.
As of right now, the Social Security Board of Trustees projects that due to increasing costs, by 2037 the program’s cash reserves will be depleted and payroll taxes will only be able to cover 75% of the scheduled benefits going forward. With this in mind, we do see changes coming for Social Security and feel those changes will mirror those made back in the 1980s: increasing the retirement age for individuals born after a certain age, changes to the payroll tax rate, and slightly reduced benefits. As we move into the future, this is certainly something we will continuously monitor and work to navigate through together with clients.
If you have any questions regarding your personal financial situation, please don't hesitate to call a member of our Gilbert & Cook team at 515.270.6444 or email info@gilbertcook.com
