Social insecurity

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Don’t worry: Social Security isn’t about to go bankrupt” But some little^known strategies may boost your benefits”

Maximizing your social Security benefits, which account for about 40 percent of all income among people age 65 and older, is crucial to retiring with a comfortable, sustainable standard of living. But talking with seniors in recent months, I have heard deep misgivings about whether the federal government can be trusted to keep funding the program properly. And many boomers approaching retirement, concerned about rising deficits and debt, seem to share that pessimism. I understand where the negativity is coming from: The national economy is still in terrible shape, and politicians and pundits love to talk about how Social Security is running out of money.

So let me reassure you: Social Security isn’t going anywhere. It’s true that the program’s tax receipts will start to fall short of outlays in 2016, and its long-term surplus will drain away by 2037, according to the most recent government estimates.

But even then, Social Security would be able to deliver about three-fourths of scheduled benefits. And the gap between that level of payouts and full funding isn’t insurmountably huge: about 2 percent of national wages, which Uncle Sam could fill through combinations of relatively minor tax increases and benefit reductions.

Moreover, while the aging of the baby boom is actuarially troublesome, it is augmenting Social Security’s already powerful political constituency. Heeding the program’s success and seniors’ high voter turnout rates, presidents and congressional leaders of both parties have been friendly toward Social Security beneficiaries in a way they’re not toward, say, the folks covered by minimum-wage laws. To take just one example, by law Social Security cost-of-living adjustments can only go up, never down; benefits jumped 5.8 percent in 2009, but even though prices actually declined in 2009, monthly payments will hold steady in 2010. This kind of support isn’t going to end anytime soon.

So you should include Social Security in your retirement planning, whether you’ll be eligible for it in 15 months or 15 years. Which quickly leads to a fundamental decision that can be worth hundreds of thousands of dollars over your lifetime: When should you take benefits?

To answer that question, it’s helpful to understand a few basic facts about how Social Security works. First, how does the program calculate your benefits? By looking at your income history, adjusting your annual earnings for inflation, averaging together your 35 highest-paid years and replacing a portion of that average income on a monthly basis according to a progressive formula. (That is, it substitutes a higher percentage of earnings for recipients at lower levels of income.)

Next, the timing: You can start drawing Social Security payments as soon as you reach age 62, but your full retirement age is the age at which you can claim full benefits. This will be somewhere between 65 and 67, depending on the year you were born. If you take benefits before you reach full retirement age, your payments will be reduced. Conversely, you can delay taking Social Security after you reach full retirement age and the amount of your eventual benefits will increase until you reach age 70.

You can claim benefits based on either your own earnings history or your spouse’s. Spousal benefits are equal to 5 0 percent of what your husband or wife gets if you take them at full retirement age, less if you take them early. And if your spouse dies, you are eligible to receive his or her full monthly amount as a survivor benefit.

Finally, you can continue to work while receiving Social Security, but if you do so before reaching full retirement age, your benefits will be reduced. In the years before you hit full retirement age, Social Security will withhold one dollar for every two you earn over $14,160; in the year you reach full retirement age, the program will hold back one dollar for every three you make over $37,680; beyond your full retirement age, you can work with no penalty.

Complicated? Definitely—which is why you need to sit down with your spouse and Social Security’s Retirement Estimator (www.ssa.gov/estimator) to see what’s best for your household. You may well find it’s worth waiting to take benefits, at least until you reach full retirement age.

Unfortunately, human beings tend to take money as soon as it’s available, whatever the circumstances. Half of all men, in fact, claim Social Security by the age of 63. Many surely need the cash. Just as surely, others are shortchanging themselves and their widows. Make sure you work through your numbers thoroughly.

Beyond these basic considerations, I want to outline three unusual but perfectly legal Social Security strategies that analysts at the Center for Retirement Research at Boston College explored in an important study released last August.

First, if your husband or wife retires, you can claim spousal benefits, keep working and then switch to your own benefits later, when you retire. This approach lets you build up credits while you collect at least some payments. And it’s very helpful if you and your spouse want to retire at different times.

Second, when you reach full retirement age, you can claim benefits but suspend payment until a later date. Your husband or wife can then take spousal benefits right away while the value of your own future payments rises. This technique is particularly useful if you and your spouse have very different earnings histories. If your wife, for example, will not qualify for substantial benefits on her own, she can still collect monthly checks while yours are suspended.

Finally, if you claim Social Security early, you can reclaim at a higher benefit level later—as long as you’re able to pay back all the benefits you’ve received so far. Suppose you started taking $1,000 a month at age 62 and have collected $50,000 so far but would be eligible for $1,300 a month if you retired today. If you give the government back its $50,000, it will treat you as though you never claimed in the first place—and pay you the higher monthly benefit.

These strategies can be tricky, and you should consult a planner if you pursue any of them. But they underscore the bottom line: When you get over any anxieties you have about Social Security and master its details, the payoff can be huge.

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