Preview Social Security’s role in your retirement plans

31 Aug 2015 | Author: | No comments yet »

Plan for cuts in disability benefits, but hope for the best.

Marilyn Murphy of Torrance, Calif., contacted her local Social Security office this past spring to find out if spousal benefits based on her first husband’s work record might be worth more than the retirement benefit she already receives.The future for Medicare and Social Security might not look bright at the moment, but it’s particularly bleak for the government’s disability insurance program.With Social Security celebrating its 80th anniversary this year, now might be a good time to review the benefits you can expect — even if you’re skeptical about ever getting those benefits.

Not so: If you’re an adult, you can monitor your benefits situation with a few clicks of the keyboard and start serious planning for your retirement income. According to the Social Security trustees’ report released last month, the disability insurance trust fund will run out money in 2016 and it needs immediate attention. A new survey by the Transamerica Center for Retirement Studies found that 76 percent of all workers are concerned that Social Security won’t be around when they retire.

The second marriage also ended in divorce. “I knew enough from my own research that wasn’t right,” Murphy said. “I heard: ‘It’s federal law, and there’s nothing we can do about it.’” Getting wrong answers from Social Security is not unusual, according to financial advisers and experts on claiming strategies. The my Social Security accounts give you the chance to change direct deposit of your benefits if you already receive Social Security, as well as request a replacement Medicaid card or order SSA tax documents, among other services. In the absence of any attention, millions of Americans will receive an automatic 19% reduction in their Social Security disability benefits in the fourth quarter of 2016.

Relying on this misinformation can lead to missing out on benefits for which you qualify or losing opportunities to maximize your checks. “Forty percent of what the good folks at Social Security tell you, almost always with great certitude, is either outright wrong, partially wrong, incomplete, or confused,” said economist Laurence Kotlikoff, co-author of the best-selling book “Get What’s Yours: Secrets to Maximizing Your Social Security.” No one has actually tested representatives on the accuracy of their responses, and Investment News columnist Mary Beth Franklin, who has been writing about Social Security since 2008, said she thought the agency’s employees were getting better at addressing complex situations. Thereafter, payroll taxes will cover only about three-quarters of scheduled benefits through 2089, the latest year through which projections currently are made. “When it was originally put into place, Social Security was intended to be a safety net for a minimal amount of income in retirement, and it was supposed to be augmented with other things,” said Jim Blankenship, a financial planner in New Berlin, Illinois.

Social Security has thousands of rules and claiming strategies that can be hard to grasp, which leads people to misunderstand what representatives tell them, Franklin said. For example, people may think they can claim a spousal benefit at age 62 and then switch to their own benefit later, but that strategy is only available to those who have reached full retirement age, currently 66, and file a special “restricted” application. Once you set up the account, you can review your Social Security statement — a key move since earnings determine your future retirement benefits and,according to the SSA, you cannot normally correct your earnings after three years, three months and 15 days from the end of the taxable year in which your wages were paid.

Still, Franklin frequently hears from readers who have been told incorrectly that they cannot suspend their benefits because they are single or started benefits too early. Confirm records with tax returns filed with the Internal Revenue Service;Fix errors due to employee omissions from processed employer reports or missing reports;Rectify mistakes “on the face of the record,” that is, errors Social Security can find after examining agency records of processed reports; and Include wages that an employer reported as paid to you but that don’t appear in SSA records. Today, however, you will be mailed a paper statement once every five years from ages 25-60. (After 60, a statement is sent annually.) If you don’t want to wait, head online. Financial planners also have reported Social Security representatives who insist that only six months’ worth of back benefits are available to people who rescind their suspension. Benefits, however, are set by a complicated formula based on a worker’s lifetime earnings record at retirement … Workers, on their own, cannot be expected to know how much they could get.” For instance, the study finds that reviewing your records generally leads to an understanding that claiming benefits later increases monthly Social Security income.

No evidence, though, indicates that just because most people understand this concept they do delay retiring: Most look at planning for retirement only in terms of saving and investment and not in terms of working longer — the latter of which can drastically increase savings and benefits. In 2015, you earn one credit for every $1,220 of earnings that are subject to Social Security taxes, up to a maximum of four credits (or $4,880 in earnings). Last year, 81 percent of customers said they were satisfied with the service they received, and 33 percent termed it “excellent.” “Whenever we hear that a member of the public did not receive the level of service he or she expected, we take the matter very seriously,” Stump said.

And because you likely haven’t reached your peak earning years, your estimated benefits may be artificially low. (To calculate your benefits, Social Security averages the earnings from your top 35 working years.) Your earnings record. The supervisor confirmed that to qualify for divorced spousal benefits, the marriage had to have lasted at least 10 years and Murphy had to be currently unmarried. Murphy was glad she finally got the correct answer to her question, even though switching to the spousal benefit would not have made any difference to her monthly check.

If you can’t balance your budget, consider taking withdrawals from your savings and investment accounts to make up for the reduced benefit, says Vosberg. If it’s not enough to cover your monthly expenses — keeping in mind that even those benefits may not be fully payable if Social Security runs short of funds — think of how you’ll make up the shortfall in retirement. Franklin and Kotlikoff both suggest doing your own research to determine the best claiming strategies rather than relying on Social Security representatives’ advice. Waiting a few more years before retiring and filing for Social Security raises your monthly benefit with Delayed Retirement Credits (DRCs); these include a 5.5% increase in your eventual benefits per year of delay if you were born in 1933 or 1934, a 7.5% yearly increase if you were born in 1941 or 1942 and an 8% increase in you were born in 1943 or later. Delaying filing can also of course decrease additional savings you need to maintain your desired standard of living and can shorten the number of years that you eventually draw on savings.

Voice your displeasure with how Congress is managing the affairs of this country, says Stephen Stellhorn, president and CEO of MSM Capital Management in Tampa and author of Navigating the Maze of Social Security. “This problem is a legislative one, which Congress must address,” Stellhorn says. “What makes 2016 so unique is there is a presidential election occurring.

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