By H. William Wolfson, DC, MS, MPASSM, CFP®
Social Security was enacted in 1935. The program is officially known as the Old Age, Survivors and Disability Insurance program (OASDI). After earning 40 quarters, an individual at retirement age is eligible to begin collecting a benefit. Quarters earned never expire. This helps those who worked in the past but decided, for whatever reason, to discontinue working and then begin again at some later date. The highest earning years help determine the final eligible amount a beneficiary will receive.
“Retirement benefits depend on your age at retirement. If you begin receiving benefits before your normal or full retirement age (FRA), you'll receive a reduced benefit,” according to FindLaw.com. “You may choose to retire as early as age 62, but doing so may result in a reduction of up to 30 percent. On the other hand, you'll receive your largest benefit [approximately 8 percent per year for each year after your FRA] by delaying retirement until age 70.”
OASDI provisions were established to help families when the primary recipient retires, becomes disabled or dies. This allows for a benefit to be paid to eligible individuals, i.e. spouse, children and other deemed eligible recipients. Widow or widower benefits are also available if the surviving spouse is age 60 years or more (age 50 if disabled). In some situations, divorced spouses may collect on the deceased person’s profile if they meet specific requirements.
Supplemental Security Income (SSI) pays benefits based on financial need. “Supplemental Security Income (SSI) is a Federal income supplement program funded by general tax revenues (not Social Security taxes). It is designed to help aged, blind, and disabled people, who have little or no income; and it provides cash to meet basic needs for food, clothing, and shelter,” according to the Social Security Administration. In addition, “This type of Social Security benefit provides stipends to people who are blind, disabled, or 65 years old and over, and who have no or limited incomes and resources.”
Medicare Parts A, B, C and D
Part A is automatically provided at age 65 for necessary hospitalization and skilled nursing care. If eligible to participate in Social Security, three months prior to your 65th birthday registering for Medicare (Part B) is mandatory with limited exceptions. Failure to register will incur a mandatory 10 percent lifetime penalty for each year not registered, unless eligible for healthcare coverage from your or a spouse’s employer. Part B covers medical and other healthcare services, and necessary medical devices. Part D is for prescription drug coverage. Medicare Part C is for Medicare Advantage Plans, which can be an HMO or a similar type of plan. The premiums for Parts B, C and D are deducted from a recipient’s monthly Social Security payment.
What You Don’t Know Can Cost You
Nationwide Retirement Institute® recently released its Nationwide Social Security 5th Annual Consumer Survey. The report is chock full of timely information that should be reviewed by anyone contemplating retirement. Four out of five future retirees agree that the Social Security system needs change. Many are fearful that benefits will be reduced and are not aware of the basics regarding their eligibility, participation and the monetary benefits of their Social Security profile. Sadly, 55 percent believe that Social Security will be their primary source of income in retirement.
In March 2018, MassMutual Insurance Company hired KRC Research to analyze an online survey among 1,007 Americans age 50+. According to Mass Mutual, “Nearly half (47 percent) of Americans age 50+ failed a basic five true/false question quiz on Social Security retirement benefits.” Up until a few years ago, the Social Security Administration (SSA) would send an annual statement illustrating reported quarters of reported income recorded by the Administration. However, individuals must now go online to review their summary statements. The importance of doing this should not be underestimated or dismissed. “Not only can establishing an account help ensure that your Social Security retirement benefit calculations are accurate, it can also help with identity theft protection because only one account per Social Security number is allowed.”
Want to see how much you know about Social Security retirement benefits? Take the full MassMutual quiz here and see for yourself. If you do not have an online Social Security account, go to the Social Security Administration website to create one.
Seismic Demographic Shift
The Pew Research Center stated previously that beginning in 2011 “roughly 10,000 Baby Boomers [1946-1964] will turn 65 today, and about 10,000 more will cross that threshold every day for the next 19 years.” This doesn’t necessarily mean that all will elect to begin their Social Security benefit at the same time. Instead, given the options available, each will decide what works best for his or her specific situation. “The retirement of the baby boomer generation is one of the biggest shifts currently happening in the U.S., carrying significant long-term implications for government spending and the labor market,” notes MarketWatch.com.
According to an article on PlanSponsor.com, “Baby Boomers are in large measure unprepared for retirement, having failed both to plan adequately and save enough, according to a study released by the Insured Retirement Institute (IRI), in conjunction with National Retirement Planning Week.”
Become Knowledgeable and Make Smart Decisions
The cacophony of seemingly conflicting regulations can stump the most seasoned and knowledgeable counselor. Even calling the Social Security Administration for help is no guarantee of receiving accurate information. Social Security rules should prompt the most knowledgeable advisor to double check any advice given. Deciding on an appropriate action plan is not only confusing but can also cause anxiety over any final decisions. What is one to do?
Financial writer John Kador summed it up succinctly, “There is an optimum filing strategy that will maximize lifetime benefits—and reduce longevity risk—for every individual or couple. But analyzing hundreds of scenarios to identify that strategy is dizzying.”
Online tools are available to help provide clarity in making decisions. For example, here are five free Social Security claiming calculators:
Headwind vs. Tailwind
An individual may be confident in doing his or her own research and analysis prior to making the decision on when to access benefits. Last modified May 18, 2018, by the SSA, “If you change your mind about receiving benefits, you may be able to withdraw your Social Security claim only if it has been less than 12 months since you were first entitled to benefits. Your date of entitlement is the month you start your benefits and may not be the same as the date you receive your first check. If you withdraw your claim, you may re-apply at a future date.” An applicant is only allowed a one-time lifetime withdrawal.
Cathy Weatherford, president and CEO of the Insured Retirement Institute, stated, “It is important for Americans to have a plan, save as much as they can, and seek the help of retirement professionals to make sure they are using all possible resources to prepare for a comfortable retirement.”
Dr. Wolfson is a financial consultant and advisor. He retired after 27 years of active chiropractic practice. Dr. Wolfson can be reached at (631) 486-2792 or firstname.lastname@example.org. View more published articles here.