Social security is our nation’s indispensable social program – and it’s also in some pretty serious trouble.
Earlier this year, the Social Security Board released an annual report detailing the short-term (10-year) and long-term (75-year) prospects for the program. As is the case with all reports since 1985, the news is not good. According to the Commissioner’s estimates, the $ 2.9 trillion of Social Security’s asset reserves (accumulated net cash surplus since inception) will be completely depleted by 2035, at which point those Retired workers may face sweeping benefit cuts of up to 24% to maintain long-term chapter solvency.
The report also highlights a $ 16.8 trillion shortfall in cash between 2035 and 2094. The longer legislators wait to address program shortcomings, the longer the ship will move. it will be even more expensive for working Americans.
However, not everything about the most important social program goes wrong.
Patience is paying off
Just as the Trustees publish their Social Security outlooks each year, the Social Security Administration presents a treasure trove of historical and current data on the program through the addition of year. Included in the latest addition is a very promising drop in a key character.
Between 1995 and 2016, more than 70% of retired workers receiving benefits experienced a reduction in early retirement payments. At retirement, the employee’s year of birth determines their full retirement age, when they can receive their full retirement payment. Receiving benefits any time between the age of 62 (the first eligible age for retiring workers) to the month prior to full retirement age will result in a permanent reduction in the item payment. month. The reverse is true for workers waiting to receive wages until they reach full retirement age, with benefits permanently increasing.
This 70% surplus statistic shows that nearly 3 out of 4 retirees have paid early and are willing to accept a permanent monthly drop. It is worrying that more than 60% of retired workers now rely on Social Security as a major part of their income.
But as of December 2019, 67.3% of the nearly 45.1 million retired workers receiving benefits have had their payments reduced. That marks the 9th consecutive year that the percentage of early retirees has fallen relative to the total number of retired workers. It is also the lowest percentage of retired workers facing permanent wage reductions in 35 years. In other words, people are being patient and waiting longer before receiving their Social Security benefits.
The following request is usually smart
Our Social Security decision is tough because we (thankfully) don’t know our expiration date. Without this knowledge, we can never know whether we are choosing the optimal claim date or not. In an optimal way, I mean the decision will deliver the highest possible lifetime payout (keyword!).
Highest lifetime benefits don’t always mean the highest monthly benefits. For example, someone with one or more chronic health conditions may choose to pay early. In general, if a retired worker does not achieve the average life expectancy in the US of almost 79 years, it is almost always a better idea to get benefits early, even if the rates drop.
However, the evidence completely supports waiting to receive your money.
In June 2019, United Income released a study called “The Hidden in Plain Vision Retirement Solution,” which looked at optimal claims decisions for seniors in the 2,000 households against their actual claims decisions. The United Income finding shows that two curves are completely inverse. Essentially, the majority of retirees received early benefits, but the best claim age comes later.
Age 62 – the earliest claim age and the one that will lead to a monthly benefit cut of up to 30 percent – formerly the most common age for retired workers. However, United Income data shows that only 6.5% of elderly households make optimal claims decisions at age 62 or 63. Research shows 57% will make claim decisions. Compensation is best at the age of 70, that’s when the monthly payments are maximized. The optimal claim decision for more than 80% of retired workers is between the ages of 67 and 70 (i.e., after reaching full retirement age).
Again, later claiming doesn’t guarantee you will get more out of Social Security. However, based solely on data from the United Income study, and taking into account the growing longevity, it is clear that patience pays off with Social Security.