Current Condition of Social Security

By: Rick Kahler, CFP^®
At the heart of America’s overspending are two entitlement programs, Social Security and Medicare. Most Americans count on Social Security for a significant portion of their retirement income and on Medicare for their retirement health care.

I’m often asked, “Will Social Security be there for me when I retire?” That’s a fair concern when you consider the staggering size of our national debt, which is small compared to the “off balance sheet” liability represented by the unfunded obligations of Social Security and Medicare. Most lawmakers agree off-record that the only way these programs will continue to exist is if we make cuts in benefits and broadly raise income taxes on all taxpayers, not just the rich. Such a scenario probably includes a European-style national VAT (value added tax).

The good news is that when you take politics out of the equation, saving Social Security could be fairly simple. Its solvency could be guaranteed by fixes such as extending the retirement age to 70 and increasing the Social Security tax. I have little worry that current recipients will see any reduction in benefits. For those not yet retired, my best guess is the program will “be there” in some shape or form.

To qualify for Social Security benefits you need to have worked at least part-time for a cumulative total of at least 10 years. Your benefit is computed on your average lifetime earnings of the past 35 years, adjusted for inflation. Having a high salary the last few years of employment will help raise your average, but not significantly.

In their current form, when compared to other similar immediate annuities, Social Security and Medicare are a great deal. They represent a complete security net of retirement, disability, and health insurance benefits that are indexed to inflation. The only little flaw in the formula is that the benefits are so good, we are having to borrow money to deliver them. Only time will tell if Congress increases taxes enough to retain the current benefits or whether we will see some decrease in benefits.

Currently, while Medicare benefits begin at age 65, the qualifying age for receiving full Social Security benefits is being gradually increased. It tops out at 67 for those born in 1960 or later. Some retirees, however, elect to start receiving reduced benefits (70% of the full amount) at age 62. The thought is that the present value of gaining the five years of reduced benefits offsets waiting until 67 for the higher amount.

That reasoning is absolutely correct—if you plan to die early. Generally, if you are in good health and don’t have a genetic history of cancer or heart disease, you are probably best off waiting until 67 to take your Social Security. It also makes sense to wait until age 67 if you are still working at age 62, as any earnings above the $14,160 limit will reduce your Social Security benefit.

For more information, visit a local Social Security office, call (800) 772-1213, or go to www.ssa.gov.
Rick Kahler is a Certified Financial Planner™ professional licensed with a registered investment adviser that provides personal financial advice online for a flat fee.He is an author of four books on financial psychology and recognized by BusinessWeek magazine as one of the 15 most experienced financial planners in the nation. Contact Rick for help on virtually any financial need.

Financial advice you can depend on

If you wonder why it is easy to get “free” financial advice on the web, but hard to get “real” (i.e., actionable) advice from a professional at a reasonable price, here are the reasons.

1. Most financial advisors are not trained to offer advice in modular, usable amounts to middle income people. Instead, their training and continuing education are designed to help them solve complex problems common to high net worth, high income folks who pay them higher fees.
2. Free financial advice is offered by financial services companies to set you up for a sale. It isn’t “bait and switch”, precisely. In sales parlance, advice is used as a “loss leader”. The advisor gets a prospect, the prospect gets “free” or inexpensive advice. But, strangely, prospects often walk away from that kind of meeting having purchased a financial product (mutual fund, CD, insurance policy, annuity). It seems, in this fact pattern, as if “financial services” is not about solving your problems or answering your questions, but instead is about selling you a financial product.
3. It is difficult to know who to trust! How do you know who are the advisors with the real expertise and the ethical white hats. For safety’s sake, you need to look to the training, licensing details and reputation of each advisor. For taxes, see an Enrolled Agent or a Certified Public Accountant. For technical investment questions and securities analysis, you may choose to see a Chartered Financial Analyst. For general financial planning, investment, cash flow management and life event help, see a Certified Financial Planner professional.  All these professionals have received up-to-date, current training and have the analytical tools to help you make good decisions.
4. It’s hard to get “face time” with an expert in their office without paying high fees. However, you may be able to get online access to these folks at a reasonable price through sites that help you identify the problem you need advice on.

 

If you want free advice, you may be in for an unpleasant experience. But if you want help in making an important decision and will pay an advisors hourly rate or flat fee for good advice, there is help out there. Dependable advice must offer the option of recommending doing nothing, waiting for a better time or opportunity or price or milestone before acting or walking away when the issue is currently too risky. The professionals who give advice this way are called “fiduciaries”. They are worth their weight in gold and are beginning to be available to all. Advisors who blog here can serve you as fiduciaries. You can also examine some credentials of other real pros here.

 

Kevin Condon is a Certified Financial Planner™ professional licensed with a registered investment adviser that provides personal financial advice online for a flat fee. His firm, located in Boulder, Colorado, includes a portal through which expert, independent advisors give advice.  Find advisors there for help on virtually any financial need.