The financial media aren’t your friends.
Every day, there’s something new on the cable channels to scare people. What’s Washington’s next plan for reaching into your wallet? What horrible event will send markets into a nose dive? What surefire opportunity did you just miss?
Scare tactics drive ratings and Web clicks, but the well-coifed TV anchors don’t have any kind of legal, moral or ethical responsibility for your financial health.
When it comes to one of the key components of retirement income, Social Security, you don’t have to look far to find scare tactics. I teach Social Security workshops in Santa Fe, Albuquerque and Los Alamos. At every event, there is at least one person — usually more — who is genuinely concerned that Social Security is going broke in the near future.
In the unlikely event that Congress takes absolutely no action to reform Social Security, all benefits would be fully payable through 2032. After that, the amount that the Social Security Administration could pay drops to 75 percent until 2086, when it drops to 73 percent.
That’s hardly “bankrupt.” But it’s important to keep in mind: Congress regularly institutes small changes that maintain solvency. For example, the maximum earnings subject to Social Security taxation rose to $117,000 this year, up from $113,700 in 2013.
Just to give you a sense of how that number has increased over time, when Social Security was instituted in the 1930s, the maximum taxable earnings amount was $3,000.
Also, the full retirement age has gradually been raised. For people born between 1943 and 1954, the full retirement age is 66. Starting with people born in 1955, that age goes up incrementally, two months at a time. In other words, for people born in 1959, the full retirement age is 66 and 10 months. For everybody born in 1960 or later, full retirement age is 67 currently, but that’s almost certain to also go up at some point.
So when you hear the shouting class on TV insisting that one political party or the other is taking away your Social Security, just turn it off. In fact, it’s better to just never watch the financial chatter on the cable channels at all. I was once a CNBC junkie, but I stopped watching about a year ago and feel much calmer now.
Now that we’ve established that Social Security will indeed be there for the baby boom generation, let’s move on to some strategies to maximize your income. Plenty of people underestimate the value of Social Security, but for the average retiree, it makes up about 40 percent of his or her retirement income stream. That’s not something to take lightly!
But that “average” retiree makes some serious Social Security mistakes. According to data from Annexus, a Scottsdale, Ariz.-based distributor of fixed indexed annuities, the average retiree leaves $100,000 in lifetime Social Security benefits on the table. That’s due to claiming benefits too early or not having a strategy for maximizing Social Security income. The average married couple forgoes $250,000 in lifetime benefits.
Here’s another statistic that illustrates how people shortchange themselves. Nearly three-quarters of retirees claim Social Security benefits at age 62, the earliest age at which they are eligible. But when you do that, you only get 75 percent of your full retirement benefit.
I understand that plenty of people need the money and don’t have much of a choice. But I’ve met others who simply didn’t realize the financial impact of waiting. For every year you delay Social Security, you get paid 8 percent by the government. When you layer cost-of-living adjustments on top of that, the difference is even more substantial.
Social Security strategy is a big topic, and it’s worth continuing in my next column. There are more than 8,000 different strategy combinations, when you take into account different courses for singles, married couples, widows and widowers, and divorcees.
In my seminars, I frequently get questions about strategies for married couples, such as “file and suspend,” or “claim and switch.” Many of the same strategies also apply to divorced people. In June, I’ll delve into some of these options and examine some situations in which they are best applied.
Please send any financial planning questions to firstname.lastname@example.org. I’m interested in hearing about your concerns, and I’m happy to help.
Kate Stalter is a financial planner with New Mexico-based Portfolio Wealth Advisors. She is also a columnist for TheStreet.com, Forbes and Morningstar. You can reach her at 884-3445 or email@example.com.