Making Social Security Work for You in Retirement

Social Security CardsSocial Security is a hot conversation today both in Washington and here at home. It is often one of the most asked about topics in our retirement classes that we teach and understandably so. Almost all retirees have Social Security benefits as an essential component of their income strategy for retirement. But I find that understanding how the process works and when benefits should be taken is what people struggle with the most. So, with our time together this week, let me try to clear up some of the confusion.

You are eligible to receive Social Security benefits as early as age 62, but you will not receive your full monthly benefit if you begin to collect on that date. The Social Security Administration (SSA) has gradually increased the full retirement age for taxpayers born since 1938. Full retirement age reaches age 67 for those born after 1959. (If you were born before 1960, a Retirement Age Calculator is available from the SSA Web site.) If you first begin to collect Social Security at age 62, you will only receive 70% of your full retirement benefits .

If you are married, then there’s also a spousal benefit to consider. At your full retirement age, your spouse is entitled to collect 50% of your retirement benefit. If you retire instead at age 62, your spouse will receive a reduced amount of 32.5% instead.

According to the U.S. Census Bureau, that the average age of retirement here in the United States is 63 years old. Regardless of what Social Security thinks, most people begin to collect at 63. People’s reasons for retiring at that age vary: In some cases, folks retire simply because they’re able to and want to. In other cases, medical conditions or other factors force their hand. Regardless of your reasons for retiring, at age 63, the SSA says you’re still only entitled to 75% of your full retirement benefits. Social Security narrows that gap gradually, month to month from age 62 to age 67 – when you reach full retirement age.

The SSA calculates your Social Security benefit by indexing your monthly earnings during the 35 years in which you earned the most. If the income produced during those later years of work helps to buoy those numbers, you’ll be able to expect more from Social Security in retirement. The maximum monthly Social Security benefit payment for a person reaching full retirement age in 2018 is $2,788.

If you can delay your retirement past your full retirement age, the SSA rewards you by increasing your benefit amount past 100% up to a maximum 132% by age 70. So, when it comes to your Social Security check, there’s no benefit to you working past age 70.

Of course, not all of us can work until we’re 70, and few of us want to work until then, either. But consider this, folks: the average monthly benefit in 2018 for all retired workers is $1,404. With a difference of more than $420 per month on the line for the average worker (the 30% reduction you’d see retiring at 62), you will need a strategy that enables you to capture as much of this benefit as you can.

For most of us, Social Security only covers a portion of what we’ll need in retirement. Uncle Sam never expected to provide all of what we will need to live comfortably or even survive. The SSA itself assumes that its benefits comprise only about 40% of the average retiree’s income. The rest, they think, will be produced by retirement accounts, savings held by the retiree, and other investment tools managed by the retiree.

There are warnings on the horizon that changes may be afoot to Social Security as we know it. The trustees responsible for funding Social Security have warned that its multi trillion-dollar trust will be depleted as soon as 2034. The SSA had to tap into that trust to pay out benefits in 2018. That’s the first time they’ve touched that trust fund in decades. This depletion is expected to continue as Boomers age out and collect Social Security benefits in ever greater numbers.

What will happen in 2034, when the Social Security Trust Fund runs out of money? The Trustees say that once that happens, Social Security will only be able to pay out about 79% of benefit payments. While benefits don’t stop, the taxes paying for Social Security won’t be enough to cover all of the program’s costs.

So, let me put it a different way: without any changes to the way Social Security is funded, by 2034 you may see a 21% cut to your expected benefits. Even if you reach full retirement age before collecting. Even if you’re already collecting. The money won’t be there anymore, without significant reform.

Ultimately, the “Wizards of Washington” will have to address this with options that are likely to win them few friends among their constituents. One method to change that’s been discussed is to raise the rate of FICA payroll taxes. Those taxes are paid for both by workers and by employers. Another method that’s been discussed is to reduce benefits altogether or to increase the full retirement age from 67 to a higher number. “Means-testing” is also on the table. Do we really want the Wizards of Washington to give Uncle Sam the authority to look into someone’s financial circumstances to determine if they think they are “eligible” to collect on something they have been paying into for 30 years? Not me! The fact is that combinations of all these choices are being evaluated, along with other possibilities.

One way or the other, voters are likely to remember any changes that make it more challenging to collect. Which, of course, may explain why so little is getting by our elected officials on Capitol Hill to solve the problem equitably.

Folks, understanding how the Social Security process works and what your options are can help you to design and to deploy a sound retirement system. A sound retirement system must include income, investment, and tax planning. A well thought out retirement system – including when to take Social Security – is the key to financial success.

Be vigilant and stay alert because you deserve more.

Have a great week.

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, a wealth management firm with offices in Falmouth, Duxbury, and Mansfield. Jeff can be reached at

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