MONEY Social Security

Here’s What You Can Really Expect from Social Security

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The projected Social Security shortfall is likely to hit younger workers hardest.

Social Security turns 80 next month and, as always, one of big unknowns for this octogenarian program is how much longer it will be around—at least in its present form.

Social Security has two trust funds: the Old-Age and Survivors (OAS) fund, and its smaller sibling, the Disability Insurance ( DI) fund. Most people lump the funds together as the OASDI retirement program. But they operate separately. Out of the 6.2% payroll tax that workers and their employers each must pay into Social Security, 5.3% goes into the OAS fund and 0.9% to the DI fund.

The bigger OAS fund is what most people focus on when they worry about Social Security’s long-term sustainability. Every year program trustees issue an report that includes the latest projections about how long the fund will last.

Money Running Out

Last year’s report said the combined reserves of both funds would be exhausted in the year 2033, at which time it could pay only 77¢ on the dollar of its benefit obligations. The DI fund, however, faces a more immediate crisis. It will run out of money in 2016—as in next year—and its 0.9% payroll tax levy will then collect only enough to pay 81% of its benefit obligations.

The DI fund has faced shortfalls before, and Congress has papered over the problem by transferring money into it from the larger OAS fund. When the Republicans assumed control of both houses of Congress this year, however, they rejected this short-term fix and said they would be seeking a longer-term solution before DI funds ran out. Expecting anything more before next year’s elections than a last-minute bailout from the OAS fund is a long shot.

Regardless of the DI fund situation, the biggest concern for future retirees remains the OAS fund. On paper, there are loads of reasonable ways to return the fund to long-term sustainability. But there is no sign yet that Congress is any more willing to tackle this issue than it has been during the many years since it became a well-known problem. If anything, Democrats have seized on rising income inequality to mount a campaign that Social Security benefits should be increased, not reduced.

Future Benefit Cuts

All of which raises the big question: What should current workers and near-retirees expect from Social Security now?

For anyone 55 or older, relax—it’s highly unlikely that your Social Security benefits will change substantially. Even the reform proposals with the steepest benefit cuts tend to leave this age group alone.

Younger generations, however, have more reason to be concerned. Opinion polls regularly find that many younger workers think Social Security will not be there for them when they retire.

While I think Social Security certainly will be around for another 80 years, I do think it makes sense for people younger than 50 to build a contingency in their retirement plans that would allow for, say, a 10% haircut in benefits for those ages 45 to 55, and a 20% trim for those who are younger.

Personally, I do not think these cuts will occur. But even under existing Social Security rules, Social Security’s so-called replacement rate—benefits as a percentage of pre-retirement incomes—has been slowly declining and is projected to continue doing so.

Lifting the Wage Ceiling

Younger high-income earners, in particular, should plan for smaller Social Security benefits. That’s because one of the most likely ways to improve system finances, as well as one of the most politically popular, is to substantially increase the level of annual wage income on which payroll taxes are levied. It stands at $118,500 this year but could easily be doubled and then some under many proposals. And some progressive reformers would remove the wage ceiling entirely, exposing all wage income to Social Security taxes.

However, more drastic benefit reductions are unlikely. Why?

More than half of couples aged 65 and older depend on Social Security for more than half of their total household income. For single beneficiaries, nearly 75% are reliant on Social Security for most of their income.

These figures will be cited with increasingly frequency as the 2016 Presidential campaign picks up steam. So will the reality these older Americans tend to show up to vote at a higher-than-average rate. There is a reason Social Security is called the “third rail” of American politics—and it hasn’t lost that juice at all.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: This Is the Maximum Benefit You Can Get from Social Security

MONEY Opinion

4 Agenda Items Missing From Monday’s White House Conference on Aging

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The agenda for the July 13th conference overlooks some of the most pressing issues facing seniors today.

When presidents call Americans together to talk about aging, major change is possible. The first White House Conference on Aging in 1961 played a midwife’s role in the birth of Medicare; the 1971 conference led to creation of the automatic cost-of-living adjustment for Social Security, which has been in place since 1975.

This year’s conference, set for Monday, July 13, could have similar impact in a country facing the challenges of a rapidly aging population.

Unfortunately, I’m not optimistic that this year’s summit will be as productive as past ones have been. While I’d love to be proven wrong, the agenda overlooks too many important issues: rapid diversification of our older population, retirement inequality and assigning a bigger role to Social Security, and finding a way to protect pensions and Medicare.

Also, a failure by Congress to fund the event forced a sharp downsizing, limiting the number of voices that will be heard.

All in all, it’s shaping up as a missed opportunity at a time when aging in America is a growing challenge. In 2050, the 65-and-older population will be 83.7 million, almost double what it was in 2012, according to the U.S. Census Bureau.

Four broad topics will be considered: retirement security, healthy aging, preventing elder financial exploitation and abuse, and long-term services and supports. All are important, but much of the agenda reads like a rehash of ideas the Obama administration has been promoting for years, especially in the area of retirement security.

“The White House can always get a bunch of people together to talk about its own initiatives, but that isn’t the idea behind the conference on aging,” said Paul Kleyman, a longtime observer of trends in aging who was a delegate to the 1995 aging conference hosted by President Bill Clinton. “They’re using a talking points format to say ‘Here’s what we think and want to do,’ without really taking in and assessing what an aging nation is saying needs to be done.”

On the plus side, the agenda highlights the need to eliminate conflicted financial advice, and includes questions about how to better promote healthy aging.

Also up for discussion is how to help people age in place. A recent report from the National Association of Area Agencies on Aging (n4a) found that the biggest challenges seniors face concern inadequate transportation, living independently and finding affordable housing.

“The most frequent calls for help that we hear concern aging at home and staying in the community,” said Sandy Markwood, n4a’s chief executive officer. “That is the goal of most individuals. Rarely do we hear anyone saying, ‘I just can’t wait to go into an institutional setting.’ ”

But so much is missing. For starters, the rising importance of ethnic, non-white and LGBT elders. Kleyman, who directs coverage of ethnic elders at New America Media, noted that the percentage of ethnic and non-white elderly in the 65-plus population will double by 2050, to 42 percent. LGBT seniors, while smaller in total numbers, face discrimination in housing and healthcare.

Longevity Inequality

Another omitted topic: the pressing moral issue of inequality in longevity. White men with 16 or more years of schooling live an average of 14 years longer than black men with fewer than 12 years of education, according to the Centers for Disease Control.

Racial and gender and racial disparities also are evident in wealth and retirement income, another issue that gets short shrift. Instead, we get a rehash of ideas the Obama Administration has been hawking for years now: auto-IRAs at the federal and state levels, better access to workplace saving plan enrollment and simplified requirement minimum distribution rules.

The discussion of Social Security looks like it will be especially disappointing. The policy brief embraces generalities about “strengthening Social Security” without mentioning the boldest, smartest idea being advanced by the left flank of the President’s own party: expansion of benefits focused on low- and middle-class households. Finding ways to protect traditional pensions? Preserving Medicare as a defined benefit, and defending it against voucherization? Those are nowhere to be found.

The conference should be talking about the upside of aging, along with ways to encourage trends such as encore careers by fighting age discrimination in hiring, getting more employers to support phased retirement and re-thinking how higher education can serve older adults.

Plenty of advocates would like to raise these issues, but most won’t be present due to the funding constraints. Actual delegates will be replaced by an audience of hand-picked dignitaries; everyone else will be relegated to watch parties and submitting questions via social media.

So, let’s get the party started: @whitehouse. Take a wider, more inclusive view of aging in America.

MONEY mutual funds

Why Over Diversifying Your Investments Is Dangerous

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Owning too many funds can make investing more complicated than it needs to be.

Do you collect mutual funds? Unlike hobbyists who collect stamps, art or rare coins, investors who own a multitude of funds are not better off.

While diversification is important to any portfolio, owning too many funds can make investing more complicated that necessary.

One of my clients owned 16 different accounts, including an array of stock and bond mutual funds. In all, he had 56 mutual fund positions. Everyone should be well-diversified, but this client had missed that mark. He had a cluttered collection of investments that didn’t serve him well.

A lot of folks are in the same situation: Their finances are a hodgepodge. Good financial advisors bring order to that mess, and adopt a common-sense strategy for the long term.

Five years ago, the client, a doctor, came to me because he wanted to retire. His portfolio was sizeable, yet he had no idea what he owned or why. “I simply don’t understand what I have,” he said. “Will I have enough cash flow in retirement?”

I told him his concern was spot-on. I helped consolidate his holdings while greatly improving his diversification.

Here’s what’s wrong with owning too many funds and other investments:

Tracking them all is difficult. You should review all your monthly statements. Following 16 accounts can be a nightmare. Rebalancing when your circumstances change or funds shift in value is a challenge. Evaluating performance is nearly impossible. Fewer funds and accounts are much easier to handle.

Duplication is common. With so many funds aggregated haphazardly with no plan, you get a lot of overlap. My client had some funds that matched his Standard & Poor’s 500 index fund, except they cost more in annual fees. There’s no sense in paying for more of the same thing.

There’s little diversification, and risk isn’t reduced. Ideally, a portfolio is sufficiently balanced so that if one asset suffers, others offset its losses. A study by Morningstar, the investment research firm, shows that owning more than four randomly selected funds decreases risk very little. Only a small difference exists between holding four funds and 30.

Figuring out where to get cash in retirement is a chore. Once retirement begins, you need to decide which accounts should provide your cash flow. Consolidated accounts made this process much easier.

In my client’s case, around 80% of his portfolio was in stocks or equity funds. His portfolio looked like that of a 30-year-old, not a 70-year-old. All that stock exposure was too risky for a man his age. You need to safeguard the value of your assets to see yourself through retirement.

We switched him to a 50%-50% split between stocks and bonds. This gave the client the ballast of a solid fixed-income allocation, and also allowed him enough stock exposure to keep his net worth growing – thus increasing his chance of leaving a substantial bequest for his heirs. Stocks’ growth usually offsets inflation, which eats away at bonds.

Before he came to us, my client was driving with no road map. In assisting him, we dramatically simplified his financial life.

As with most things, in the world of financial planning, simpler is better.

Jason Lina, CFA, CFP is Lead Advisor at Resource Planning Group Ltd. in Atlanta.

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MONEY retirement income

3 Retirement Loopholes That Are Likely to Close

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The government has a knack for catching on to the most popular loopholes.

There are plenty of tips and tricks to maximizing your retirement benefits, and more than a few are considered “loopholes” that taxpayers have been able to use to circumvent the letter of the law in order to pay less to the government.

But as often happens when too many people make use of such shortcuts, the government may move to close three retirement loopholes that have become increasingly popular as financial advisers have learned how to exploit kinks in the law.

1. Back-door Roth IRA conversions
The U.S. Congress created this particular loophole by lifting income restrictions from conversions from a traditional Individual Retirement Account (IRA) to a Roth IRA, but not listing these restrictions from the contributions to the accounts.

People whose incomes are too high to put after-tax money directly into a Roth, where the growth is tax-free, can instead fund a traditional IRA with a nondeductible contribution and shortly thereafter convert the IRA to a Roth.

Taxes are typically due in a Roth conversion, but this technique will not trigger much, if any, tax bill if the contributor does not have other money in an IRA.
President Obama’s 2016 budget proposal suggests that future Roth conversions be limited to pre-tax money only, effectively killing most back-door Roths.

Congressional gridlock, though, means action is not likely until the next administration takes over, said financial planner and enrolled agent Francis St. Onge with Total Financial Planning in Brighton, Michigan. He doubts any tax change would be retroactive, which means the window for doing back-door Roths is likely to remain open for awhile.

“It would create too much turmoil if they forced people to undo them,” says St. Onge.

2. The stretch IRA
People who inherit an IRA have the option of taking distributions over their lifetimes. Wealthy families that convert IRAs to Roths can potentially provide tax-free income to their heirs for decades, since Roth withdrawals are typically
not taxed.

That bothers lawmakers across the political spectrum who think retirement funds should be for retirement – not a bonanza for inheritors.

“Congress never imagined the IRA to be an estate-planning vehicle,” said Ed Slott, a certified public accountant and author of “Ed Slott’s 2015 Retirement Decisions Guide.”

Most recent tax-related bills have included a provision to kill the stretch IRA and replace it with a law requiring beneficiaries other than spouses to withdraw the money within five years.

Anyone contemplating a Roth conversion for the benefit of heirs should evaluate whether the strategy makes sense if those heirs have to withdraw the money within five years, Slott said.

3. “Aggressive” strategies for Social Security
Obama’s budget also proposed to eliminate “aggressive” Social Security claiming strategies, which it said allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits.

Obama did not specify which strategies, but retirement experts said he is likely referring to the “file and suspend” and “claim now, claim more later” techniques.

Married people can claim a benefit based on their own work record or a spousal benefit of up to half their partner’s benefit. Dual-earner couples may profit by doing both.

People who choose a spousal benefit at full retirement age (currently 66) can later switch to their own benefit when it maxes out at age 70 – known as the “claim now, claim more later” approach that can boost a couple’s lifetime Social Security payout by tens of thousands of dollars.

The “file and suspend” technique can be used in conjunction with this strategy or on its own. Typically one member of a couple has to file for retirement benefits for the other partner to get a spousal benefit.

Someone who reaches full retirement age also has the option of applying for Social Security and then immediately suspending the application so that the benefit continues to grow, while allowing a spouse to claim a spousal benefit.

People close to retirement need not worry, said Boston University economist Laurence Kotlikoff, who wrote the bestseller “Get What’s Yours: The Secrets to Maxing Out Social Security.”

“I don’t see them ever taking anything away that they’ve already given,” Kotlikoff said. “If they do something, they’ll have to phase it in.”

MONEY retirement income

New Annuity Options Let You Plan Around Life’s Biggest Unknowns

Longevity annuities can ensure your money lasts a lifetime—and now they can reduce required minimum distributions too.

How much money you will need to save to enjoy a secure retirement depends on the ultimate unknowable: How long will you live?

The possibility of running short is called longevity risk, and the Obama administration last year established rules to foster a new type of annuity, the Qualified Longevity Annuity Contract, that would provide a steady monthly payment until you die.

QLACs are a variation on a broader product category called deferred income annuities, which let buyers pay an initial premium or make a series of scheduled payments and set a future date to start receiving income. Deferred annuities are less expensive to buy than immediate annuities, which start paying out monthly as soon as you purchase them.

You can purchase the plans at or near your retirement age, typically 70, with payouts starting much later, usually at 80 or 85.

The advantage of these QLAC plans is that they provide some guaranteed regular income until death, so they can supplement Social Security. And the deferred feature allows you to generate much more income per dollar invested.

For example, Principal Financial Group Inc, which introduced a QLAC for individual retirement accounts in February, says an $80,000 policy purchased at age 70 will generate $12,840 annually for a man and $11,490 for a woman at age 80. An immediate annuity would provide $6,144 for the 70-year-old man and $5,748 for the woman, according to Immediateannuities.com.

Despite the benefits, annuities have lagged in popularity. The White House thought it could encourage more people to buy deferred annuities if they could be purchased and held inside tax-deferred IRAs and 401(k) plans.

The problem it had to fix was that required minimum distributions mean that 401(k) and IRA participants must start taking withdrawals at age 70 1/2, which conflicts with the later payout dates of longevity annuities.

The new rules state that if a longevity annuity meets certain requirements, the distribution requirement is waived on the contract value (which cannot exceed $125,000 or 25% of the buyer’s account balance, whichever is less).

That not only makes a deferred annuity possible inside a tax-deferred plan, it also can encourage their use for anyone interested in reducing the total amount of savings subject to mandatory distributions.

Sixteen insurance companies are now selling QLAC variations, up from just four in 2012. At Principal Financial, QLACs now account for roughly 10% of all deferred annuities, with the average buyer close to age 70, according to Sara Wiener, assistant vice president of annuities.

Employer sponsors of 401(k) plans are showing more interest in adding income options to their plans, but they have been slow to add annuity options. Still, MetLife Inc is one insurance company testing this market, with a 401(k) product introduced last month.

“If you go back 40 years to the time when defined contribution plans were in their infancy, they were seen as companion savings plans to pensions,” says Roberta Rafaloff, MetLife vice president of institutional income annuities.

“Plan sponsors didn’t think of them as a plan for generating income streams until recently,” she said. “Now they’re taking a much more active interest in retirement income.”

All this still constitutes a small part of a shrinking pie. Sales for all annuity types have been falling in recent years due in part to persistently low interest rates, which determine payouts.

“It’s going to take time for consumers to understand the value of addressing longevity risk,” says Todd Giesing, senior annuity analyst at industry research and consulting group LIMRA. “But we’re hearing from insurance companies that it’s creating a great deal of conversation in the market.”

Read next: Which Generates More Retirement Income—Annuities or Portfolio Withdrawals?

MONEY retirement income

3 Retirement-Crushing Unforeseen Circumstances

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Derris Lanier

And what do about them.

Planning for retirement is a challenge for everyone because you have to find money to set aside in savings, invest that money well, and then figure out how to make ends meet once you stop working. Even when everything goes right, retirement planning isn’t easy, but the real test comes when unforeseen circumstances might ruin all of your plans.

Fortunately, you can deal with the unexpected rather than letting it crush your retirement hopes. Let’s take a closer look at three of the most common problems that people have trouble foreseeing and what you can do to avoid them or handle them when they come up.

1. Having to retire before you expected.
There’s a big gap between how long most people expect to work and how long they actually do work. The reason is simple: Unforeseen circumstances come up that prevent you from working into your 60s or beyond. In some cases, a health condition stands in the way of being able to stay in your job. For others, corporate moves lead your employer to cut back on staffing, and high-priced older employees often find themselves the first to go. Even if you’re fortunate enough to get a severance package, it might not last long enough to get you to the age you expected to retire.

The first thing to do when you have to retire unexpectedly is to look at your actual and potential income and expenses, working to maximize money coming in and cutting unnecessary costs. Getting part-time work is sometimes an option to help supplement income from investments or other sources, and looking at whether Social Security or other pension income might be available to you before full retirement age is worth the effort.

After you have a handle on what you’re taking in and what you’re spending, the next step is to figure out a longer-term strategy to make ends meet on your new budget. If you have enough, you’re good to go. If not, you can look at some of the resources for retirees on limited incomes can use to help make ends meet until more typical retirement benefits become available.

2. Dealing with a badly timed stock market drop.
Everyone understands the stock market rises and falls in cycles over the years. Yet when it comes time to plan for retirement, this basic fact can be very hard to deal with. If the market drops right after you retire, you could find yourself with a far smaller retirement nest egg than you had expected.

There are several ways you can address this risk. One is to use specialized financial instruments designed to provide money later in your retirement, ensuring a basic income even if your money doesn’t go as far as you had expected. For instance, a deferred income annuity allows you to pay a premium now in exchange for a guarantee of future payments from an insurance company once you reach a certain age.

Also, easing back on your stock market exposure as you age can help insulate your assets from a falling market. As you’ll see below, though, there are sometimes reasons for keeping the portion of your money in stocks higher than you might think. Still, if you’re willing to give up some potential future growth — and you have the assets to do so — then being slightly more conservative can offer a good solution to any unforeseen market moves that could put you in dire straits.

3. Not having the income you’d expected to get from your investments.
Recently, many retirees have found that they can’t generate the income they need from their savings. Bank products pay almost no interest, and it’s hard to do much better in traditional fixed-income investments like bonds.

There are ways to get more income from your investments, but you have to be careful about how much you rely on them. In recent years, many investors have shifted into dividend-paying stocks, with superior yields compared to bonds, bank CDs, and savings accounts. After six years of a bull market, though, some investors have forgotten just how hard stocks can fall. For that reason, shifting entirely into risky investments just to get more income isn’t a smart way to go. Nevertheless, a diversified mix of income investments that includes not just bonds, but also dividend-paying stocks, real-estate investment trusts, royalty trusts, and other niche investment assets can limit your risk while giving you the income you need.

Retiring well takes effort, and dealing with unforeseen circumstances makes it even harder. Nevertheless, with some forethought, you can put yourself in the best position possible to deal with unexpected surprises and come out on top.

Read next: 4 Ways to Bridge the Retirement Income Gap

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MONEY retirement income

4 Ways to Bridge the Retirement Income Gap

Gregory Reid; prop styling by Renee Flugge

Think you can't afford to delay taking Social Security once you retire? These steps can help.

If you’re on the verge of retirement, you’ve probably heard this Social Security advice: Delay claiming your benefit as long as possible, and it will increase by 7% to 8% each year you wait.

Great idea, except for one problem. Once you retire, how do you come up with enough money to live on until benefits kick in? Two-thirds of workers file before full retirement age—currently 66—and only about 2% wait until 70, when benefits max out.

The good news is that you can make waiting easier, assuming you have money saved up or have other sources of cash. Even if you defer claiming your benefit for only a year or two, you’ll permanently boost your income and financial security. Here are four strategies for delaying.

Work … Just a Little

Because Social Security will come to only a fraction of your salary—typically $20,000 to $25,000 if you retire at $100,000 a year—you need work only a fraction of the time to replace it. Some companies have phased-retirement programs letting older workers cut their hours; if your employer doesn’t, maybe you can negotiate a schedule light enough to feel like retirement. Want a change? Start exploring part-time opportunities in new fields, suggests psychologist Robert Delamontagne, author of The Retiring Mind.

The upside is not just financial. “For many people,” says Delamontagne, “working part-time, especially if you are highly engaged, can increase health and happiness.”

Go Halfway

If you’re married, both of you can delay claiming retirement benefits on your own work records at the same time that one of you receives Social Security money—payments that can be equal to half of what the other spouse would be due at full retirement age.

To do this, follow what’s known as a file-and-suspend strategy, says Jim Blankenship, a planner in New Berlin, Ill. At full retirement age, the higher-earning spouse files for benefits, then suspends payments. Then the other spouse files for spousal benefits. If the primary earner is due, say, $2,500 a month at full retirement age, the spouse would receive $1,250. Meanwhile, the eventual monthly retirement benefits for each spouse—based on his or her own earnings—would continue to grow until he or she starts taking checks or reaches age 70. Wait until you’re both at full retirement age to do this, or your benefits will be trimmed.

Use the free Social Security calculator at FinancialEngines.com to see how this would work for you, or pay up for customized guidance at MaximizeMySocialSecurity.com ($40) or at SocialSecuritySolutions.com (starts at $20).

Take Bigger Withdrawls

Ideally, you would minimize the odds of exhausting your portfolio in retirement by limiting your initial annual withdrawal to 3% to 5% of your savings (then adjusting for inflation). If that’s not an option, you might try the riskier strategy of starting at a higher rate, then lowering it once you claim benefits.

Although this approach may seem counterintuitive, the longer you wait to claim, the lower your chances of running out of money—as long as you keep your inflation-adjusted income level until you claim, says Morningstar’s head of retirement research, David Blanchett. The gains to be had from a higher monthly benefit more than offset the increased drain on your portfolio (see the chart at left). But before you try this strategy, Blanchett advises testing it with a Social Security calculator or consulting a financial planner.

Start With Your 401(k)

Whatever your withdrawal rate, take advantage of your low tax bracket before Social Security and mandatory withdrawals from retirement accounts kick in. Pull money from your pretax accounts, such as your 401(k) or traditional IRA, where most of your investments likely sit, says Baylor University finance professor William Reichenstein, a principal at Social Security Solutions.

His reasoning: After age 70½ you’ll have to take required minimum distributions from those pretax accounts. Added to your Social Security checks, those RMDs may generate more income than you need—and more taxes. (For married couples filing jointly and making over $32,000, up to 85% of Social Security benefits are taxed.) By withdrawing pretax money in your sixties, before you have to, you’ll have smaller RMDs later, an easier time controlling your income, and a portfolio that—because you’ll lose less of it to taxes—is more likely to last you in retirement.

Read next:This Is the Maximum Benefit You Can Get from Social Security

Money
MONEY Social Security

This Is the Maximum Benefit You Can Get from Social Security

If you're fortunate enough to earn a hefty salary throughout your career, a Social Security jackpot awaits.

If Social Security had a lottery jackpot, it would go to the small number of persons who collect the absolutely highest retirement benefits allowed under agency rules.

How high are the hurdles to claiming the maximum amount? Pretty darn high. A worker needs to have wage earnings large enough to equal or exceed the agency’s annual ceiling on earnings subject to payroll taxes for at least 35 years.

The earnings ceiling this year is $118,500. And that number has nearly doubled in the past 20 years from $60,000 in 1995.

Social Security bases your benefits on your highest 35 years of earnings after adjusting each year’s earnings to reflect wage inflation. In other words, your top 35 years, as documented via your payroll stubs, may not be your top 35 once they’re adjusted for wage inflation. Still, you can be certain that if you’ve earned at or above the annual payroll-tax ceiling for at least 35 years—lucky you!—a benefits bonanza awaits.

The size of that benefit check will also depend on wage inflation. This year’s top monthly benefit at 66, or full retirement age (which is the benchmark the agency uses), is $2,663 ($31,956 a year). By contrast, the average Social Security payout is a more modest $1,287 ($15,444 a year).

If you wait until age 70 to claim, delayed retirement credits will boost your payment to $3,515 in today’s dollars ($42,182 a year). The actual amount you’d receive in four years also would include accumulated cost of living adjustments.

If you haven’t already done so, open an online Social Security account to access the agency’s record of your earnings each year. By comparing what you have earned each year to that year’s earnings ceiling, you can see how close you are to being eligible for the benefit jackpot. For the uber-geeky, Social Security provides each year’s top benefit and the average inflation-indexed wages used in its calculations.

Clearly, few workers qualify for the highest payout. While claiming ages are rising, fewer than 2% of all Social Security beneficiaries wait to file for benefits until age 70, when they reach their maximum level.

The maximum benefit payouts in future years will depend on how much wage inflation there has been. This will determine the new ceiling for earnings on which payroll taxes must be paid, which in turn will drive a new jackpot number.

Even so, we do know that the top benefit won’t change much next year. Rates of general inflation have been so low that some people think the annual cost-of-living adjustment for 2016 benefits will be very small or even zero. Of course, you may be comforted that this also means your benefit dollars are not being eroded by inflation.

And if you’ve earned enough money to qualify for the highest payout, odds are you’re not too worried anyway about missing out on a few more benefit dollars.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: Are Social Security Benefits Taxable?

MONEY retirement planning

3 Ways to Boost the Odds Your Savings Will Last a Lifetime

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Sarina Finkelstein (photo illustration)—Getty Images (2)

Ease your worries about running out of money in retirement by making these relatively simple moves.

A recent report by the Insured Retirement Institute shows that only 27% of baby boomers are very confident they will have enough money to see them through retirement. That fear is justified when you combine overall low levels of savings with forecasts for low investment returns in the years ahead. Still, there are ways to improve your retirement income prospects. Here are three relatively simple steps you should consider.

1. Get the most out of Social Security. Even though we’re living longer, 62 is still the most popular age for claiming Social Security, according to a Government Accountability Office report. But by taking benefits earlier rather than later, you may end up collecting a lot less than you otherwise could over your lifetime, putting teven more strain on your nest egg to maintain your standard of living.

Here’s a quick summary of what you need to know: Every year you delay claiming benefits between age 62 and 70, your payment rises roughly 7% to 8%, and that’s before inflation adjustments. If you’re married, you and your spouse may be able to ramp up your potential lifetime benefit even more than individuals can by adopting any of a number of claiming strategies.

One example: If a 62-year-old man who earns $100,000 a year and his 60-year-old wife who makes $60,000 both start taking benefits at 62, they might collect a projected $1.1 million or so in lifetime benefits, according to Financial Engines’ Social Security calculator. But if the wife starts taking her own benefit at 64, the husband files a “restricted application” at age 66 to take spousal benefits and the husband then files for his own benefit at age 70, they can potentially increase the amount they’ll collect over their joint lifetimes by almost $300,000.

Given the money at stake and the complexity of the Social Security system, you’ll want to rev up a good Social Security calculator or work with an adviser who knows the ins and outs of the Social Security program before you sign up for benefits.

2. Buy guaranteed lifetime income you can begin collecting immediately. If you decide you want more assured income than Social Security and any pensions alone might generate, you may want to consider devoting some of your savings to an immediate annuity. Essentially, you invest a lump sum with an insurer in return for monthly payments you’ll receive for as long as you live, even if the financial markets perform abysmally.

Today, for example, a 65-year-old man who puts $100,000 into an immediate annuity might receive about $550 a month for life, while a 65-year-old woman would would get roughly $515 a month and a 65-year-old couple (man and woman) would receive about $425 a month as long as either is alive. (This annuity calculator can estimate how you might receive for different amounts of money and different ages.)

The downside is that you agree to give up access to your money, so it’s not available for emergencies or to leave to heirs. (Some annuities provide various degrees of access to principal, but they typically pay less at least initially and often come with onerous fees.) Which is why even if you decide an immediate annuity is right for you, you want to be sure you have plenty of other savings invested in stocks, bonds and cash equivalents that can provide capital growth to maintain purchasing power and provide extra cash should you need it for emergencies and such.

3. Buy lifetime income you can collect in the future. If you don’t feel the need to turn savings into guaranteed income early in retirement but you worry you might run short of income late in life if your investments fare poorly or you simply overspend, you may be a candidate for a relatively new arrival on the annuity scene: a longevity, or deferred income, annuity. Like an immediate annuity, a longevity annuity provides income for life, except that you don’t start collecting payments until, say, 10 or 20 years down the road. So, for example, a 65-year-old man who invests $25,000 in a longevity annuity today, might receive $320 a month for life starting at 75 or $1,070 a month if he waits until age 85 to start taking payments. The idea is that you put up less money upfront than you would with an immediate annuity—leaving more of your savings for current spending—and by waiting to collect you receive a hefty payment in the future.

The rub? You could end up collecting nothing or very little if you die before the payments start or soon thereafter. (Some longevity annuities have a cash refund feature that gives your beneficiary any portion of your original investment you didn’t collect in payments before dying, but the payment is much lower.) This annuity calculator can show what size payment a longevity annuity might make based on the amount you invest, your age when you make the investment and the number of years you wait before collecting payments.

Buying a longevity annuity with money from a 401(k), IRA or similar account was pretty much a non-starter until recently because of regs generally requiring minimum distributions starting at age 70 1/2. But as long as the longevity annuity is designated a QLAC (Qualifying Longevity Annuity Contract) under new Treasury Department rules, you can invest up to $125,000 or 25% of your 401(k) or IRA account balance without having to worry about minimum withdrawals on that amount as long as your payments start no later than age 85. Just a handful of insurers offer QLACs today, but if the longevity annuity concept catches on, that number should grow.

There are other things you can and should do to make your savings last, ranging from smart lifestyle planning so you have a better idea of the expenses you’ll face in retirement to being more judicious about how much you pull from your nest egg each year. But the three steps above are certainly a good place to start.

Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at walter@realdealretirement.com.

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More people are catching on to the benefits of delaying Social Security. But the real issue isn't when everyone else claims—it's finding the strategy that fits your goals.

Retirement experts have been pounding the drums for years about deferring Social Security benefits and allowing them to grow until claimed at age 66 or even as late as 70. Yet average retirement ages have moved little—most people continue to file at or near age 62, the earliest that standard retirement benefits can be claimed, Social Security data show.

Now, thanks to some new research by the Center for Retirement Research at Boston College, this puzzling contradiction has been solved. It turns out that people are aware of the benefits of delayed filing and, in fact, have been claiming later for many years.

Why the discrepancy in these numbers? In its analysis, Social Security looks at when people file for retirement benefits and does a year-by-year calculation of average claiming ages. This approach works fine during periods of stable population growth, but not so much today.

Social Security’s method fails to account for the soaring numbers of Baby Boomers reaching retirement age. For example, nearly 900,000 men turned 62 in the year 1997, while in 2013, roughly 1.4 million men did so. Even so, a smaller percentage of 62-year-old men filed for Social Security in 2013 than in earlier years. But because the number of 62-year-old retirees make up such a big share of all claims, the average age has remained largely unchanged.

To get a better picture of claiming trends, the Center also used a lifecycle analysis. Instead of tracking the ages of everyone who began benefits in a certain year, such as 2013, it calculated the claiming ages of everyone by the year in which they were born. Looking at this so-called “cohort” data, it became clear that average claiming ages actually had increased far more than people thought.

In 2013, for example, 42% of men and nearly 48% who claimed that year were 62 years old. But only 36% of men and nearly 40% of women who turned 62 in 2013 actually filed for Social Security. “The cohort data reveal that the claiming picture has really changed,” the Center said.

I am cheered by these new findings. People should consider deferring their Social Security benefits and see how doing so would affect their retirement plan. But the key word in that sentence is “plan.” You need one, and it should include figuring out the best Social Security strategy for you, not what’s best for other retirees. Here are the steps to get there:

  • Compare the tax benefits. Our hearts tell us that preserving 401(k) dollars in our nest eggs is essential. But when it comes to spending down those assets in order to delay claiming Social Security, the deferral strategy looks very good. Between the ages of 62 and 70, Social Security retirement benefits rise 7% to 8% a year. They are adjusted upward each year to account for inflation. They are guaranteed by Uncle Sam. Federal taxes are never levied on more than 85 cents of each dollar of Social Security benefits, and most states don’t tax them at all. Compare these terms with 401(k) gains and taxation, and then decide which dollars are most worth preserving.
  • Assess the cost of early claiming. Social Security benefits claimed before Full Retirement Age (66 for people now nearing retirement) are hit with early claiming reductions and, if you are still working, subject to at least temporary benefit reductions caused by the Earnings Test.
  • Weigh the Medicare impact. If you have a health savings account (HSA) through employer group insurance and are eligible for Medicare, filing for Social Security will force you to take Part A of Medicare. It’s normally free but the consequences are not: the filing will force you to drop out of your HSA.
  • Consider longevity risk. Review your family health history, complete an online longevity survey, and estimate your probable lifespan. What does this number say about how long your retirement funds need to last and when you should begin taking Social Security?
  • Think about your family. Will you still have school-age children at home when you turn 62? If so, filing early for Social Security may allow your kids to claim benefits based on your earnings record. This is one case when filing early may put more money in your pocket.
  • Plan for your spouse. Survivor’s benefits are keyed to the Social Security benefits received by the deceased spouse. So, the longer a spouse waits to claim, the higher their partner’s survivor benefit will be. This is a real issue for millions of women who survive their husbands and whose own retirement benefits are smaller than their husbands because they have earned less money in their lives.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: How the Social Security Earnings Test Could Wipe Out Your Income

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