TIME Congress

Nazis to Be Banned From Getting U.S. Social Security

Rep. Carolyn Maloney hopes the House will vote on the legislation this month

Lawmakers introduced a bill Thursday that seeks to bar Nazis from receiving benefits like Social Security.

An October AP report revealed that the U.S. government had given millions of dollars to former Nazis in Social Security payments, even after many had left the country. At least 38 out of 66 who fled or were deported since 1979 continued to receive payments. At least four suspects are still alive and in Europe, living on American funds. Four more suspected Nazis continue to live stateside.

The new legislation would put an end to all federal benefits, and would require the attorney general to communicate with the Social Security Administration about all those who lose their American citizenship as a result of Nazi investigations. The bill is sponsored by Reps. Jason Chaffetz (R-Utah), Leonard Lance (R-N.J.) and Carolyn Maloney (D-N.Y.), who said she hopes the House will vote on the measure this month.

[The Hill]

 

MONEY retirement planning

Five Takeaways on Retirement from the Midterm Elections

With Republicans controlling Congress, expect a push to cut Social Social and Medicare benefits—and maybe new ideas to encourage savings.

Retirement policy wasn’t on the ballot in last week’s midterm elections. But the new political landscape could threaten the retirement security of middle-class households.

With Republicans in full control of Congress, expect efforts to cut Social Security and Medicare benefits. And more Republican-controlled statehouses mean more efforts to curtail state and local workers’ pension plans. One positive note: Congress and the White House could find common ground on some promising ideas to encourage retirement saving.

Here are five policy areas to watch that could affect your retirement security.

SOCIAL SECURITY

The midterm results boost the odds that Social Security cuts will be in the mix if the brinkmanship over the federal debt ceiling or budget resumes.

Social Security does need reform. Its retirement trust fund will be exhausted in 2034, when revenue from payroll taxes would cover just 77% of benefits. Meanwhile, the disability program will be able to pay full benefits only through 2016. If Congress doesn’t act, 9 million disabled people will see their benefits cut by 20%.

Republicans have advocated higher retirement ages, less generous cost-of-living increases and means-testing of benefits. Some Democrats have fought for expansion of benefits and revenue for the program but haven’t been backed by President Obama or congressional party leaders.

How deeply could benefits be slashed? If previous conservative proposals are any guide, anywhere from 15% to 20%, with young people taking the biggest hit.

MEDICARE

The GOP has pushed Medicare reform plans that would “voucherize” the program, replacing defined benefits with a set amount of cash that beneficiaries could use to shop for coverage in a Medicare exchange. That would raise premiums for seniors in traditional Medicare by 50% in 2020 over current projections, according to the Congressional Budget Office.

AFFORDABLE CARE ACT

The ACA isn’t a retirement program, but it has helped older Americans by beefing up Medicare benefits covering older people who had trouble obtaining insurance and were too young for Medicare. This year the rate of uninsured 50- to 64-year-old Americans fell from 14% to 11%, according to the Commonwealth Fund.

The percentage would be smaller if the U.S. Supreme Court hadn’t given states an opt-out option on Medicaid—it has been expanded in only 27 states and the District of Columbia. Meanwhile, congressional Republicans continue to threaten funding, and the ACA faces a new Supreme Court threat. If the court rules that tax subsidies on marketplace premiums can’t be offered on the federal exchange, exchange insurance marketplaces will be on life support in all but 13 states with their own exchanges.

PENSIONS

Republicans will control 31 governors’ offices and 30 state legislatures, the most since the 1920s. That means we can expect the attack on public sector pension benefits to accelerate.

The National Association of State Retirement Administrators and the Center for State & Local Government Excellence reviewed pension reforms by 29 states this year and found reductions in annual benefits ranged from 1.2% (Pennsylvania) to 20% (Alabama); the average across all states was 7.5%.

RETIREMENT SAVING

A grand bargain on the federal budget could limit pre-tax contributions to 401(k) accounts, an idea floated regularly in tax reform discussions. And ideas aimed at helping lower-income households save for retirement could gain ground. The Obama Administration has asked Congress to create a national automatic IRA option and is rolling out a limited version called the MyRA.

Meanwhile, Senator Marco Rubio (R-Florida) has called for a government-sponsored 401(k)-style account for Americans who don’t have a plan at work. He would like to open up the federal Thrift Savings Plan to private-sector workers. That’s attractive because the TSP boasts low costs, a short and easy-to-understand set of investment choices and options to convert savings into an annuity stream at retirement.

Another idea I like: the “baby Roth.” The plan’s architect projects that an initial contribution of $500 to an infant’s Roth IRA, with subsequent annual contributions of $250, would grow to $131,800 at age 65, versus $35,300 for an account started at age 25.

It’s disappointing that few candidates campaigned on ideas that would help the middle class build retirement security. Democrats could have boasted about how the ACA is helping older Americans. And polls show that expanding Social Security and keeping Medicare strong are winning issues across partisan divides and demographic groups.

MONEY Savings

Is Outliving Your Savings a Fate Worse Than Death?

Most people are worried about running short of cash in retirement, surveys show. But with a little planning, and a bit more saving, you can ease those anxieties.

When faced with the prospect of outliving their money, most people might toss and turn at night or obsess about where to slash their budgets.

Others have a more extreme reaction: wishing for early death.

“I can always put a bag over my head when the money runs out” was what Jeannine Hines’ husband told her when she asked what he planned to do if their cash ran out before they died.

“He would rather die than be left penniless,” says Hines, a 58-year-old piano teacher from Maryville, Tennessee.

Her husband has company. A new survey from Wells Fargo shows 22% of people say they would rather die early than not have enough cash to live comfortably in retirement.

Other surveys bear those numbers out. One by financial-services company Allianz of people in their late 40s found 77% worried more about outliving their money in retirement than death itself.

Of that survey’s respondents, those who are married with dependents are even more terrified, with 82% saying that running out of cash is a more chilling prospect than death.

“These are pretty sobering statistics,” says Joe Ready, director of Wells Fargo Institutional Retirement in Charlotte, North Carolina. “It speaks to the overwhelming stress people have about money.”

Financial planners like Rose Swanger of Advise Finance in Knoxville, Tennessee, hear about these extreme money fears all the time.

But Swanger says she does not believe people have an actual death wish; they just do not know what they will do if they outlive their cash. “So they get scared, and freeze up, and become irrational,” she says.

In one respect, collective despair is simply an acknowledgement of how much—or rather, how little—we are saving.

The Wells Fargo survey also discovered that 41% of those in their 50s are not putting anything aside for retirement, and 48% admit they will not have enough money to survive in their golden years.

Experts suggest taking a deep breath and refusing to let money fears overwhelm you. Social Security awaits in old age, and friends and family to help get you through lean times. And you can deploy multiple strategies to help prevent a penniless future.

SETTING GOALS

Instead of throwing up your hands, set a goal that is actually achievable

“Save a small amount, then a little more, and once it starts to add up, you will see your levels of stress and worry start to lower,” says Michael Norton, a Harvard Business School professor and co-author of the book “Happy Money: The Science of Smarter Spending.”

There are other ways to gain control of the situation.

“You may have to delay retirement by a couple of years, you may have to find ways to supplement your income, and you may have to reduce your standard of living both now and in retirement,” says Wells Fargo’s Ready. “All of those are ways of focusing on the reality of where you’re at, instead of just giving in to despair.”

But is this death wish that emerges in surveys really about us? Dig a little deeper into people’s anxieties about outliving their money, and you often find out it is all about the kids.

Parents feel like failures if they cannot leave an inheritance, and they certainly do not want to become financial burdens on their adult children.

“To a lot of people that’s a fate worse than dying,” says Norton.

So instead of worrying yourself into paralysis, let go of all that parental stress and anxiety.

You do not have to leave behind a huge estate; the kids will be fine. And if you have to lean on your family in old age? Hey, it is what humans have done for eons.

Our retirement challenges may be formidable, but they are certainly no reason to hope that death arrives any sooner than it has to.

More about retirement:

How much money will I need to save for retirement?

Can I afford to retire?

How should I invest my retirement money?

MONEY Social Security

How to Protect Your Retirement Income from Social Security Mistakes

pencil eraser
Ryan McVay—Getty Images

At the budget-strapped agency, reps may hand out incorrect information. Here's how our Social Security expert helped readers get the right answers.

Suspending your Social Security benefits as a way of boosting your retirement income can make sense in certain situations. But some readers who tried to follow this strategy say they have encountered problems from an unexpected source—Social Security representatives who either don’t understand how suspending benefits works or actually claim it can’t be done.

People who begin taking benefits between age 62 and their full retirement age (FRA)—66 for those born in 1943, rising to 67 for those born in 1960 or later—have the option of suspending benefits at their FRA. They can resume them at any time until benefits reach their peak at age 70. For those who defer Social Security benefits until age 70, your benefit will be 76% higher than if taken at 62, the earliest age that most people can begin claiming retirement benefits. Still, most people decide to take Social Security early because they need the money or cannot continue to work for medical reasons.

Even so, circumstances may change. Maybe a private pension kicks in, reducing the need for Social Security. Or your kids move out on their own, reducing household expenditures and the need for current income. Or maybe you simply want to walk back your decision to claim early, given the higher income you might receive by delaying—a survey last summer sponsored by Nationwide Financial found that nearly 40% of those who filed early for Social Security later regretted their move and wished they had waited. If so, suspending your benefits can be a smart strategy.

If you want to pursue this option, however, your first step is to become well informed—especially given the possibility you’ll encounter opposing views from Social Security representatives. That’s the problem one reader wrote me about:

“The agent at our Social Security office said he didn’t know anything about this and that I could check online at socialsecurity.gov and if I found out any additional information on this I could contact him and he would advise me someone I could call and get more information on this. I was shocked that he (a paid official Social Security agent) told me if I found out any additional information on this to come back to the office.”

As I told her, all the agent had to do was check his own web site to become informed. That doesn’t sound like too much to ask, does it?

While this agent did not know about suspending benefits, at least he didn’t provide the wrong information. Here’s an agent who did, according to another reader:

“We both are retired. I am 71 years old. My wife is 67 years old. I started taking Social Security benefits at 66 (my FRA) and my wife started taking early (reduced) benefits at 62 on her own income. We went to the Social Security Administration office today to sign up to stop my wife’s benefits for the next three years and start taking benefits at the age of 70. The SSA office says that we can do that but you have to pay back the total (large) amount that she received from the day she started taking benefits at 62. Without paying that large amount, they said, we cannot do that. We showed them the copy of your article and requested them to review it. We also requested that we would like the office supervisor also to review our case and your article. After reviewing your article, the SSA office supervisor told us that information in your article is incorrect.”

Now, I admit that being infallible is above my pay grade. But the right of this woman to suspend her benefits is not in question. And she doesn’t need to repay Social Security one penny of her earlier benefits. I urged the couple to do some homework and go back to their SSA office and try again:

Your wife can SUSPEND her benefit at any time between her FRA (age 66 in her case) and age 70. She does not have to repay anything that she had received in the past. But she will have to make sure she pays for any future Medicare premiums that had been deducted from her Social Security. The only time that repayment of prior benefits is required is if she WITHDREW her benefits entirely. However, this is only permitted within 12 months of when she began taking benefits, and this is not the case with her. Often, people get confused about whether they’re talking about SUSPENDING or WITHDRAWING benefits.

Here are the official descriptions of the suspension rules from the Social Security Program Operating Manual System (POMS):

GN 0249.100: Voluntary Suspensions

GN 0249.110: Conditions for Voluntary Suspension

Everyone makes mistakes, and Social Security’s rules are very complicated. Further, the Social Security Administration has been hammered by budget cuts, forced to reduce staff, and close many offices around the country, as a Senate report last summer documented. That’s still no excuse for providing people with wrong or misleading information. But it further reinforces the need for people to learn the agency’s basic rules so they can look out for themselves.

Social Security, by the way, agrees. “If the situations you described are indeed accurate, they are unacceptable and we apologize for providing any misinformation,” agency spokeswoman Dorothy Clark said. “While our programs are complex, the vast majority of our employees provide accurate information. However, when we learn of these situations, we take action to correct the errors and provide further employee training.”

Philip Moeller is an expert on retirement, aging, and health. His book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” will be published in February by Simon & Schuster. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

More on Social Security:

Here’s a quick guide to fixing Social Security

How Social Security will cut your benefits if you retire early

This little-known Social Security strategy can boost your retirement income

MONEY Social Security

Here’s a Quick Guide to Fixing Social Security

Band-Aid on Social Security card
John Kuczala—Getty Images

These changes could easily balance the program for the next 75 years. But reaching consensus on the mix of reforms is the real challenge.

Social Security likely will move back to center stage after this week’s elections. The program’s finances have eroded bit by bit for years, drawing calls for change every year. But nothing has been done. Now Congress could continue kicking this can down the road. Or it could decide to actually tackle the problem and change things, most likely as part of a broader look that also includes Medicare and Medicaid.

With favorable prospects for a Republican majority in both houses of Congress, stories already abound about raising the retirement age, changing the annual cost-of-living adjustment or raising the ceiling on earnings subject to the payroll tax.

AARP, the National Committee to Preserve Social Security & Medicare and other Social Security support groups have gone on the offensive. Far from just defending the program from cuts, they are speaking out aggressively about the merits of raising benefits

All of which makes a recent report from the Social Security Administration particularly timely. It reviews more than 120 ideas for changing Social Security and calculates how each would affect the program’s future finances. The report was overseen by Stephen C. Goss, chief actuary of the Social Security Administration. If any source is both informed and free from political spin, it is this one.

Within this list are enough changes to balance the program several times over during the next 75 years. But then, this has never been the issue. Rather, the contentious debate has been over the “right” mix of changes. And people have not been able to agree on that.

Here’s a quick guide to the reforms that would have the biggest impact, according to the report. It is tempting to just add up the financial impact of each change to see if they erase the Social Security shortfall. But, as the report notes, some reforms would affect others. So although the sum of impact of the changes will give you a ballpark estimate, the actual results are likely to be a bit different.

Cost-of-Living Adjustment (COLA). The annual cost-of-living adjustment to Social Security benefits (1.7% for 2015) has received lots of attention, primarily from a proposal to substitute a less-generous “chained” Consumer Price Index for the current inflation measure used to set the yearly change. Using the chained CPI would close 19% of the program’s projected shortfall. A more draconian measure—reducing the COLA by a percentage point from what it would otherwise be—would cut 61% of the shortfall all by itself. However, senior’s groups think the COLA should be increased to more accurately reflect the larger weight of health costs for older consumers. This proposal would raise the shortfall by 13%.

Monthly Benefits. Adjusting the complex formulas used to calculate benefits could make big dents in the shortfall. Right now, benefit increases are tied to changes in average wages. Linking them instead to general price inflation could cut as much as 90% of the system’s shortfall. That’s because wages historically have risen by more than the rate of inflation, so this change would effectively reduce the size of future benefit increases. There also are a slew of suggested sweeteners that would reduce the pain of smaller increases, although they tend not to add much to the shortfall.

Retirement Age. The normal retirement age for benefits is now 66 and set to rise to 67 in the year 2027. Raising it to 68 over a six-year period would shave 15% from the shortfall, while increasing it to 69 over 12 years would cut 35% off the long-term deficit. Raising the age to 70 over a shorter time period, and automatically adjusting it to reflect expected longevity gains, would cut the shortfall by an even larger 48%—but that’s only if the hike is combined with an increase in the earliest age for claiming benefits from 62 to 64. Reducing benefits to early retirees is strongly opposed by senior and labor groups who argue that workers in physically demanding jobs are often forced to retire early for health reasons.

Payroll Taxes and Covered Earnings. The system could be balanced by raising the payroll tax rate from its current level of 12.4% (paid half and half by employees and employers). There is a separate payroll tax for Medicare. Other proposals would raise the wage ceiling subject to payment taxes, which will rise to $118,500 in 2015. These suggestions would have large effects on program shortfalls. Simply eliminating the wage ceiling for employer payments would cut 50% from the projected 75-year deficit. Raising the ceiling so that 90% of earned wages are subject to Social Security taxes would cut 48% of the deficit. The stiffest medicine – raising the tax rate from 12.4% to 15.5%—would balance the program all by itself, and then some. On the flip side, a proposal to exempt people with more than 45 years of earnings from payroll taxes would widen the deficit by 11%. Such a change, advocates say, would improve retiree incomes and stop penalizing older workers, who must continue payroll taxes even thought their benefits do not rise as a result.

Trust Fund Investments. Social Security reserves are now invested in a special issue of U.S. Treasury Securities. Putting some of these funds into the stock market has long been a high priority of many conservatives, and strongly opposed by liberal groups. If 40% of trust funds were invested in stocks, and if they earned an annual return of 6.4%, after calculating the effects of inflation, this would close 21% of the program’s long-term funding shortfall. For comparison, the report assumed the long-term returns of the special issue of Treasury securities would be 2.9% a year, after inflation.

Getting the “right” mix of changes would be terrific, but enacting even a mediocre compromises next year would be far, far better. Think about a series of trade-offs. One side might get a later retirement age and reductions in the rate of future benefit growth, from changes to the COLA and annual wage base. The other side could get hefty hikes in payroll taxes for wealthier workers and more protection for lower-income, early retirees. Now if we could only get Congress to start the negotiations.

Philip Moeller is an expert on retirement, aging, and health. His book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” will be published early next year by Simon & Schuster. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

More on Social Security:

3 Smart Fixes for Social Security and Medicare

Social Security is the Best Deal

Can We Save Social Security?

MONEY retirement age

Australia’s Brilliant — and Brutal — Retirement Crisis Solution

Sydney Opera House and downtown skyline, Sydney, Australia.
Jill Schneider—Getty Images/National Geographic

Australia is asking workers to work longer. Would it work in the United States?

Americans are quite familiar with the challenges threatening the Social Security system, with an aging population starting to retire and putting more strain on the shrinking group of workers paying the Social Security taxes that support their benefits. But America isn’t alone in facing a retirement crisis, and other countries are taking much more dramatic steps to shore up their systems for providing financial assistance to people in their old age. In particular, Australia plans to force its workers to stay in their jobs for years beyond their current retirement age in order to qualify for benefits — and it’s giving employers incentives to make sure older workers can get the jobs they need to hold out that long.

The Australian solution: Work until you’re 70

Australia has seen many of the same things happen to its old-age pension system that the U.S. has seen with Social Security. When Australia first implemented what it calls its age pension more than a century ago, only 4% of the nation’s population lived to the age at which they could claim benefits. Now, though, life expectancies have grown, with the typical Australian living 15 to 20 years beyond the official retirement age of 65. As a result, 9% of the Australian population gets benefits from the age pension, and the potential for some of those recipients to get support from the program for two decades or more has threatened the financial stability of the system. Currently, 2.4 million Australians receive about $35 billion in benefits from the program, making it the Australian government’s largest expenditure.

As a result, Australia has made plans to increase its official retirement age. Over the next 20 years or so, Australians will see the age at which they can officially retire climb to 70 if the plan is approved, putting the land down under at the top of the world’s list of highest retirement ages.

When you just look at the age-pension portion of Australia’s retirement system, that sounds draconian, and plenty of Australians aren’t thrilled about the move. With a significant part of Australia’s economy based on extracting natural resources like oil, natural gas, coal, and various metals, the back-breaking work that many Australians do makes the prospect of staying on the job until 70 seem almost physically impossible. Proponents of the measure counter that argument with the fact that 85% of Australians work in the services industry, and many of those jobs don’t require the physical exertion that makes them impractical for those in their 60s.

Moreover, younger Australians worry about the need for older workers to stay on the job longer. Many fear a “jobless generation” of young adults who can’t get their older counterparts to give way and make room for them to start their careers.

What Australians have that the U.S. doesn’t

Yet before you bemoan the fate of the Australian public, it’s important to keep in mind that the age pension system isn’t the only resource they have going for them. In addition, Australians participate in what’s known as the superannuation system, under which employers are required to make contributions toward superannuation retirement accounts equal to 9.5% of their pay. Like American 401(k)s, employees are allowed to select investment options for this money, with default provisions usually investing in a balanced-

Over time, superannuation assets have built up impressively. As of June 30, assets in superannuation accounts rose to A$1.85 trillion. Australia is also seeking to have those fund balances rise more quickly by requiring more from employers on the superannuation front. Over the next seven years, the employer contribution rate will rise to 12%, accelerating the growth of this important part of Australians’ retirement planning.

Like 401(k)s and IRAs in the U.S., Australians can make withdrawals from their superannuation accounts at earlier ages than they can claim pensions. For those born before mid-1960, access to their retirement savings opens at age 55. That age is slated to rise to 60 over the next decade, but it will still give Australians access to money well before age pensions become available to help them bridge the financial gap.

Should America follow Australia’s lead?

Calls to increase Social Security’s retirement age have met with strong opposition in the U.S., and the Australian plan won’t change that. Yet without the backstop that superannuation provides, raising the retirement age to 70 in the U.S. would be even more painful for aging Americans. Some workers are fortunate enough to have employer matching and profit-sharing contributions that mimic what most Australians get from superannuation, but it’s rare for anyone to get anywhere near the 9.5% to 12% that Australian workers have contributed on their behalf.

Many see Australia’s answer to its retirement crisis as brutal, but given the aging population, it’s consistent with the original purpose of old-age pensions. If the U.S. wants to make similar moves, American workers need the same outside support for their retirement that Australians get — and that will also require more effort on workers’ part to save on their own for retirement.

MONEY Social Security

Why Your Social Security Check Isn’t Keeping Up With Your Costs

Next year retirees will see their benefits rise by the inflation rate. But that may not be the best measure of seniors' true spending.

Social Security’s annual inflation adjustment is one of the program’s most valuable features. But it’s time to adjust the adjustment.

Retirees will get a 1.7% bump in their Social Security benefit next year, according to the Social Security Administration, which announced the annual cost-of-living adjustment (COLA) on Wednesday. Recipients of disability benefits and Supplemental Security Income also will receive the COLA.

That reflects continuing slow inflation in the economy—the COLA has averaged 1.6% over the past four years—but it’s not enough to keep up with the higher inflation retirees face.

My in-box fills up with angry e-mail messages about the COLA every year. So if you’re gearing up to accuse Washington politicians of conspiring against seniors, please note: By law, the COLA is determined by a formula that ties it to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is compiled by the U.S. Bureau of Labor Statistics (BLS).

There is good news about this year’s COLA: Beneficiaries will keep every penny. There won’t be any offset for a higher Medicare Part B premium, which typically is deducted from Social Security payments. The premium will stay at $104.90 for the third consecutive year.

Still, the COLA formula should be revised as part of the broader Social Security reform that Congress must tackle. Many economists and policymakers say the CPI-W doesn’t measure retiree inflation accurately.

“From an ideal math perspective, what you want is a calculation based on an index that matches retirees’ cost of living,” says Polina Vlasenko, a senior research fellow at the American Institute for Economic Research. “The CPI-W is constructed to measure spending patterns of urban wage earners, and it’s pretty clear that retired people spend differently than wage earners.”

A recent national survey by the Senior Citizens League illustrates the cost pressures seniors, especially those living on fixed, lower amounts of income, face. Half of retirees said their monthly expenses rose more than $119 this year, while an even higher percentage (65%) said their benefits rose by less than $19 per month.

Other research by the group, based on BLS data, shows that Social Security beneficiaries have lost 31% of their buying power since 2000. Among big-ticket items, the largest price hikes were for property taxes (104%), gasoline (160%), some types of food and healthcare expenses.

Low COLAs also cut into future benefits for Americans who are eligible for benefits (ages 62 to 70) but haven’t yet filed. When you delay taking benefits until a later age—say, full retirement age (66)—you get full benefits increased by the COLAs awarded for the intervening years.

COLAs are prominent in the debate over Social Security reform that is likely to be rekindled in the next Congress. COLA reform could involve more generous adjustments – or a benefit cut. A cut would be achieved by adopting the “chained CPI,” which some say more accurately measures changes in consumer spending by reflecting substitution of purchases that they make when prices rise. The Social Security Administration has estimated the chained CPI would reduce COLAs by three-tenths of a percent annually.

A more generous COLA would come via the CPI-E (for “elderly”), an alternative, experimental index maintained by the BLS that is more sensitive to retirees’ spending. That index generally rises two-tenths of a percent faster than the CPI-W.

Congress has been gridlocked on Social Security, but public opinion is clear. The National Academy of Social Insurance (NASI) released a national poll Thursday that shows 72% support raising benefits. The survey also asks Americans to say how reform should be paid for. The most popular options (71%) included a gradual elimination of the cap on income taxed for Social Security ($117,000 this year, and $118,500 in 2015) and a gradual increase over 20 years on the payroll tax rates workers and employers both pay, from 6.2% to 7.2%.

Poll respondents also backed adoption of a more generous COLA, such as the CPI-E.

“Seniors are noticing the very small COLAs, and they just have a feeling that prices are going up more than that,” says Virginia Reno, NASI’s vice president for income security policy. “If you measure the market basket separately for seniors, average inflation has been a bit higher because they spend a larger share of their money on healthcare, and for things like housing and heating.”

Read more from the Ultimate Retirement Guide:

MONEY Ask the Expert

Here’s How Social Security Will Cut Your Benefits If You Retire Early

man holding calculator in front of his head
Oppenheim Bernhard—Getty Images

Whether you retire early or later, it's important to understand how Social Security calculates your benefits.

Q: I am 60 and planning on withdrawing Social Security when 62. Due to a medical condition, I am not making $16.00 an hour anymore but only making $9.00. Do you know how income level is calculated on early retirement? Thank you.

A. Social Security retirement benefits normally may be taken as early as age 62, but your income will be substantially higher if you can afford to wait. If you are entitled to, say, a $1,500 monthly benefit at age 66, you might get only $1,125 if you began benefits at age 62. Defer claiming until age 70, when benefits reach their maximum levels, and you might receive $1,980 a month.

Still, most older Americans are like you—they can’t afford to wait. Some 43% of women and 38% of men claimed benefits in 2012 at the age of 62, according to a Social Security report. Another 49% of women and 53% of men took benefits between ages 63 and 66. Just 3% of women and 4% of men took benefits at ages 67 and later, when payouts are highest.

Why are people taking Social Security early? The report didn’t ask people why they claimed benefits. But academic research suggests that the reasons are pretty much what you might expect—retirees need the money, and they also worry about leaving benefits on the table if they defer them. There is also strong evidence that most Americans are not fully aware of the advantage of delaying benefits. A study last June sponsored by Nationwide found that 40% of early claimants later regretted their decisions.

So before you quit working, it’s important to understand Social Security’s benefits formula. To calculate your payout, Social Security counts up to 35 of your highest earning years. It only includes what are called covered wages—salaries in jobs subject to Social Security payroll taxes. Generally, you must have covered earnings in at least 40 calendar quarters at any time during your working life to qualify for retirement benefits.

The agency adjusts each year of your covered earnings to reflect subsequent wage inflation. Without that adjustment, workers who earned most of their pay earlier in their careers would be shortchanged compared with those who earned more later, when wage inflation has caused salary levels to rise.

Once the agency adjusts all of your earnings, it adds up your 35 highest-paid years, then uses the monthly average of these earnings (after indexing for inflation) to determine your benefits. If you don’t have 35 years of covered earnings, Social Security will use a “zero” for any missing year, and this will drag down your benefits. On the flip side, if you keep working after you claim, the agency will automatically increase your benefits if you earn an annual salary high enough to qualify as one of your top 35 years.

The figures below show how Social Security calculated average retirement benefits as of the end of 2012 for four categories of worker pay: minimum wage, 75% of the average wage, average wage, and 150% of the average wage. (The agency pulls average wages each year from W-2 tax forms and uses this information in the indexing process that helps determine benefits.)

  • Worker at minimum wage: The monthly benefit at 62 is $686 and, at age 66 is $915.50. The maximum monthly family benefits based on this worker’s earnings record (including spousal and other auxiliary benefits) is $1,396.50.
  • Worker at 75% of average wage: The monthly benefit at 62 is $975 and, at age 66 is $1,300.40. The maximum monthly family benefits based on this worker’s earnings record (including spousal and other auxiliary benefits) is $2,381.20.
  • Worker at average wage: The monthly benefit at 62 is $1,187 and, at age 66 is $1,583.20. The maximum monthly family benefits based on this worker’s earnings record (including spousal and other auxiliary benefits) is $2,927.40.
  • Worker at 150% of average wage: The monthly benefit at 62 is $1,535 and, at age 66 is $2,047. The maximum monthly family benefits based on this worker’s earnings record (including spousal and other auxiliary benefits) is $3.582.80.

In short, claiming at age 62 means you’ll receive lower benefits compared with waiting till full retirement age. But given a lifetime earnings history and Social Security’s wage indexing, receiving a lower wage for your last few working years will not make a big difference to your retirement income.

Philip Moeller is an expert on retirement, aging, and health. His book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” will be published early next year by Simon & Schuster. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

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3 Little Mistakes That Can Sink Your Retirement

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Cultura RM/Korbey—Getty Images/Collection Mix

Big mistakes are easy to catch, but even a small miscalculation may jeopardize your retirement portfolio. Here are three common missteps to avoid.

We think it’s the big mistakes that cost us in retirement, like hiring an unscrupulous adviser or funneling savings into a risky investment that goes belly up. Major errors can certainly hurt. But the smaller seemingly sensible decisions we make without really examining the rationale behind them can also come back to bite us in the…

Assiduous planning is key to a secure retirement, but the effectiveness of plans we make depends on the assumptions behind them. And when you’re making a plan that extends well into the future, as is the case with retirement, even a small miscalculation can take you way off course. Below are three mistakes that may seem minor, but that can seriously erode your odds of achieving a successful retirement. Make sure you’re not incorporating these errors of judgment into your retirement planning.

1. Relying on an unrealistic rate of return. Clearly, the higher the return you earn on the money in 401(k)s, IRAs and other retirement accounts, the less you’ll have to stash away in savings each month to build a sizable nest egg. For example, if you start saving $600 a month at age 30 and earn a 7% annual rate of return, you’ll have $1 million by age 65. Bump up that rate of return to 8% a year, however, and you have to put away only $480 a month to hit the $1 million mark by 65, leaving you an extra $120 month to spend. Earn 9% annually, and the monthly savings required to get to $1 million shrinks to just $385 a month, freeing up even more for spending.

Problem is, just because a retirement calculator lets you plug in a higher rate of return or a more aggressive stocks-bonds mix, doesn’t mean that loftier gains will actually materialize. Shooting for higher returns always involves taking on more risk, which raises the possibility that your aggressive investing strategy could backfire and leave you with a smaller nest egg than you expected. That can be especially dangerous when you’re on the verge of retirement.

For example, just prior to the financial crisis, nearly one in four pre-retirees had more than 90% of their 401(k)s in stocks. A pre-retiree with a $1 million retirement account invested 90% in stocks and 10% in bonds would have suffered a loss in 2008 of roughly 33%, reducing its value to $670,000—enough of a drop to require seriously scaling back retirement plans if not postponing them altogether. No one knows whether recent market turbulence will be a prelude to a similar meltdown. But anyone who has his retirement savings invested in a high-octane stocks-bonds mix, clearly runs the risk of a experiencing a significant setback.

A better strategy when creating your retirement plan is to keep your return assumptions modest and focus instead on saving as much as you can. That way, you’re not as dependent on investment returns to build an adequate nest egg. To see how different savings rates and stocks-bonds mixes can affect your chances of achieving a secure retirement, check out the Retirement Income Calculator in RDR’s Retirement Toolbox.

2. Factoring pay from a retirement job into your planning. It’s almost become a cliche. Virtually every survey asking pre-retirees what they plan to do in retirement shows that the overwhelming majority plan to work. Indeed, a recent Merrill Lynch survey found that nearly three out of four people over 50 said their ideal retirement would include working. Which is fine. Staying connected to the work world in some way can not only offer financial benefits, it can also keep retirees more active and socially engaged.

It would be a mistake, however, to factor the earnings you expect to receive while working in retirement into your estimate of how much you have to save. Or, to put it more bluntly, you’re taking a big risk if you assume that you can skimp on saving because you’ll be make up for a stunted nest egg with money from a retirement job.

Why? Well for one thing, what people say they plan to do in 10 or 20 years and what they end up doing can be very different things. You may find that the eagerness you feel in your 50s to continue to working may fade as you hit your 60s and 70s. Or even if you wish to work—and actively seek it through sites like RetiredBrains.com and Retirementjobs.com, it may not be as easy as you think to land a job you like. Maybe that’s why the Employee Benefit Research Institute’s Retirement Confidence Survey finds year after year that the percentage of workers who say they plan to work after retiring (65% in the 2014 RCS) is much higher than the percentage of retirees who say they have actually worked for pay since retiring (27%).

So when you’re making projections about income sources in retirement, keep work earnings on the modest side, if you factor them in at all. And don’t fall into the trap of believing you can get by with saving less today because you’ll stay in the workforce longer or rejoin it whenever you need some extra cash in retirement. Or you may find yourself working some type of job in retirement whether you like it or not.

3. Taking Social Security sooner rather than later. Although a recent GAO report found that the percentage of people claiming Social Security at age 62 has declined in recent years, 62 remains the single most popular age to begin taking benefits, and a large majority still claim benefits before their full retirement age. But unless you have no choice but to grab benefits early on, doing so can be a costly mistake.

One reason is that for each year you delay between 62 and 70, you boost the size of your benefit roughly 7% to 8%. You’re not going to find a low-risk-high-return option like that anywhere else in today’s financial markets. More important, waiting for a higher monthly check can often dramatically increase the amount of money you receive over your lifetime. That’s especially true for married couples, who can take advantage of a variety of claiming strategies to maximize their expected benefit.

For example, if a 65-year-old husband earning $90,00 a year and his 62-year-old wife who earns $60,00 claim Social Security at 65 and 62 respectively, they might receive just over $1.1 million in today’s dollars in joint benefits over their expected lifetimes, according 401(k) advice firm Financial Engines.

But they can boost their estimated joint lifetime benefit by roughly $177,000, according to the Social Security calculator on Financial Engines’ site, if the wife files for her own benefit based on her work record at age 63, the husband files a restricted application for spousal benefits at 66 and then switches to his own benefit based on his work record at age 70.

Although you may not think of it this way, Social Security is, if not your biggest, certainly one of your biggest and most valuable retirement assets. And chances are you’ll get more out of it by taking it later rather than sooner and, if you’re married, coordinating the timing with your spouse.

Walter Updegrave is the editor of RealDealRetirement.com. He previously wrote the Ask the Expert column for MONEY and CNNMoney. You can reach him at walter@realdealretirement.com.

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Why Americans Can’t Answer the Most Basic Retirement Question

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marvinh—Getty Images/Vetta

Workers are confused by the unknowns of retirement planning. No wonder so few are trying to do it.

Planning for retirement is the most difficult part of managing your money—and it’s getting tougher, new research shows. The findings come even as rising markets have buoyed retirement savings accounts, and vast resources have been poured into things like financial education and simplified investment choices meant to ease the planning process.

Some 64% of households at least five years from retirement are having difficulty with retirement planning, according to a study from Hearts and Wallets, a financial research firm. That’s up from 54% of households two years ago and 50% in 2010. Americans rate retirement planning as the most difficult of 24 financial tasks presented in the study.

How can this be? Jobs and wages have been slowly improving. Stocks have doubled from their lows, even after the recent market tumble. The housing market is rebounding. Online tools and instruction through 401(k) plans have greatly improved. We have one-decision target-date mutual funds that make asset allocation a breeze. Yet retirement planning is perceived as more difficult.

The explanation lies at least partly in an increasingly evident quandary: few of us know exactly when we will retire and none of us know when we will die. But retirement planning is built around choosing some kind of reasonable estimate for those two variables. But that’s something few people are prepared to do. As the study found, 61% of households between the ages of 21 to 64 say they can’t answer the following basic retirement question: When will I stop full-time work?

Even the more straightforward retirement planning issues are challenging for many workers. Among the top sources of difficulty: estimating required minimum distributions from retirement accounts (57%), deciding where to keep their money (54%), and getting started saving (51%).

Those near or already in retirement have considerably less financial angst, the study found. Their most difficult task, cited by 33%, is estimating appropriate levels of spending, followed by choosing the right health insurance (31%) and a sustainable drawdown rate on their savings accounts (28%).

For younger generations, planning a precise retirement date has become far more difficult, in part because of the Great Recession. Undersaved Baby Boomers have been forced to work longer, and that has contributed to stalled careers among younger generations. The final date is now a moving target that depends on one’s health, the markets, how much you can save, and whether you will be downsized out of a job. Americans have moved a long way from the traditional goal of retirement at age 65, and the uncertainty can be crippling.

Nowhere does the study mention the difficulty of estimating how long we will live. Maybe the subject is simply one we don’t like to think about, but the fact is, many Americans are living longer and are at greater risk of running out of money in retirement. This is another critical input that individuals have trouble accounting for.

In the days of traditional pensions, many Americans could rely on professional money managers to grapple with these problems. Left on their own, without a reliable source of lifetime income (other than Social Security), workers don’t know where to start. The best response is to save as much as you can, work as long you can—and remember that retirees tend to be happy, however much they have saved.

Related:

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Read next: 3 Little Mistakes That Can Sink Your Retirement

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