Thinking About Social Security?

If you believe the scaremongers in the financial press and elsewhere, the clock is rapidly ticking down to the time — early June, according to the Wall Street Journal — when the U.S. Treasury will default on its obligations unless Congress passes legislation to increase the debt ceiling.

If Congress doesn’t act in time, the government will default on all of its obligations, we’re told, including payments due Social Security recipients, veterans, and beneficiaries of other government programs, not to mention the millions of investors both foreign and domestic who own the $31.5 trillion (and counting) of outstanding government debt.

If you’re like me, you’re probably tired of reading another story about what a monumental disaster this could be, but don’t worry, I’m not going to bore you with one.

I’m just using the debt ceiling drama as a segue into one of my financial pet peeves, and that is the advice we’re constantly given about when is the best time to start claiming Social Security benefits — assuming there are any in the event Congress fails to act and the government defaults.

If you believe the scare talk and you’re over 62 and therefore eligible for Social Security, you’re probably thinking you should apply now before the government runs out of money.

But according to the experts, you’re supposed to wait until you reach your “full” retirement age, which for most people is between 66 and 67, depending on what year you were born. (“Full” means you can earn as much as you want from a job and still collect your full Social Security benefit; if you start collecting before that, any money you earn from a job reduces your benefit dollar for dollar, although you’ll eventually get it reimbursed over time. But we won’t get into that right now.) If you can wait even longer, until you’re 70, you’ll reach your “maximum” benefit.

By waiting until you reach your full or maximum retirement age, these experts say, you can earn a much larger monthly Social Security check, or about 8% a year, for as long as you live. Which is pretty substantial, and it’s true.

However, these same experts almost invariably fail to tell you that by waiting until you’re 67 or older, you’re forgoing Social Security payments you could have been collecting in the interim, which can also add up to a nice amount of money.

But what if you don’t live that long and never collect? Continue reading "Thinking About Social Security?"

Here's Another Crisis the Fed Can Fix

Now that the geniuses at the Federal Reserve are on their way to engineering a soft landing — taming inflation while avoiding a recession — maybe their next task should be trying to fix the U.S. retirement system.

For the past year or so I have been bombarded with phone calls, emails and regular junk mail to sign up for Medicare, and this past weekend I finally reached the American Holy Grail: Medicare eligibility. It used to be Social Security, but with medical insurance so outrageously expensive Medicare has become the ultimate goal. 

Over this time I've found out the difficulties of trying to maneuver through this vast labyrinth of government benefits. Let me tell you, it ain't easy, so prepare yourself when it’s your time. 

How the government ever came up with this plan, I’ll never know, unless its intention was to deliberately confuse the heck out of its oldest citizens and to create a whole industry to help people navigate it. In that it has succeeded.

The first thing you need to know is that Social Security and Medicare are joined at the hip, but not exactly. While you’re eligible for Social Security starting at 62, you have to wait until 65 before you can sign up for Medicare, which again, is the more important of the two, unless you’re lucky enough to have your medical insurance covered by someone else, like your employer. For the vast majority of everyone else, however, Medicare is a critical benefit.

Maybe Bernie Sanders’ idea of Medicare-for-all isn’t such a great idea, but at least the two should start at the same time, just to avoid confusion.

First there’s the question of when to start taking Social Security. While you can start taking benefits as early as 62, you don’t reach your “full” payout until later, depending upon when you were born. For those born in 1957, you reach “full” retirement age at 66 and 6 months; add another six months if you were born in subsequent years.

Now, don’t confuse “full” retirement age with your “maximum” Social Security benefit, which occurs when you turn 70.

Confused yet? I’m just getting warmed up.

Most of the advice you hear about when to start taking Social Security is that you should wait until you reach your “full” benefit or, better yet, your “maximum” benefit. That’s because benefits rise by about 8% a year between 62, when you’re eligible to collect, and beyond. And the difference is indeed meaningful. For example, if you start collecting when you’re 62, rather than 66 ½, your monthly benefit will be reduced by $725, or 27.5%. Now that’s every month for the rest of your life.

While it may indeed be more financial advantageous to wait for the bigger payout, the fact is lots of people can’t – they need the money now. In fact, about a third of eligible recipients start collecting as soon as they can, at 62.

Waiting to collect isn’t always the best advice. If you believe you have a short life expectancy, either because of your lifestyle, family medical history, or both, it may be wise to start collecting early.

You also need to consider the amount of money you will forgo by waiting until “full” or “maximum” retirement age – that’s a lot of monthly payments you’ll be missing. In fact, the breakeven point between the two occurs around age 78, so if you don’t think you’ll live to see that, it may be wise not to wait to start collecting.

Now let’s get back to Medicare, whose rules are just as complicated.

There are several parts to Medicare. Part A, which covers hospitalization, is free. Yes, you heard that right - FREE.

The most expensive medical expense you can probably face is spending a night in the hospital, which Medicare estimates costs an average $13,600. And yet that coverage is free. I kid you not.

Part B covers your doctor visits, but there is a fee for that, which comes directly out of your Social Security payment. You are automatically enrolled in both Part A and B when you start collecting Social Security (I told you they were joined at the hip).

Part D covers your medicines, but not all the drugs you take are covered by Medicare (neither are dentistry, eyecare, and hearing aids, i.e., the stuff you really need when you’re old). There’s a fee for this, too.

Which brings us to Medicare “supplemental” insurance and “advantage” plans, which sound the same but are completely different. You’ve probably heard about them on TV.

As the name implies, supplemental insurance — which you also have to pay extra for - picks up some of what Medicare doesn’t cover (see above).

Advantage plans, by contrast, largely take the place of Medicare, but their premiums and coverages range all over the place. In case you were wondering, Advantage plans are also known as Medicare Part C.

I failed to mention that Social Security and Medicare make up the lion’s share of the federal budget and run out of money every few years, at which time Congress has to “fix” them to make them appear solvent for a while, which usually means making them even more complicated.

So maybe the Fed is the right place to seek a solution. It seems to solve just about all our other financial problems.

George Yacik Contributor

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from for their opinion.

Will Obama's Chained CPI Help Keep Inflation from Eating into Your Savings?

This week we examine ways in which inflation nibbles away at your retirement income, especially in light of the President’s proposal for Chained CPI adjustments to Social Security. The formal title is Chain-weighted Consumer Price Index and it’s a variation of how the government figures out what is what we would call "inflation." Either way, with the low rates on offer from CDs and other "safe" investments, investors who don’t take action fall behind every year.

Unfortunately, the numbers show what most people don’t want to face: the days of relying on Social Security plus a few stable bonds and CDs are long over. To earn decent and sustainable returns, investors must search beyond traditional safe havens. Continue reading "Will Obama's Chained CPI Help Keep Inflation from Eating into Your Savings?"

When Should You Take Social Security? 62 or Full Retirement Age?

My wife, Jo, started receiving Social Security as soon as she could. When she wondered aloud how much larger her checks would have been if she'd waited, I said, “It makes no difference! You are already four years ahead of the game.”

When we applied at the local office, the agent kept reminding her of the big raise she would get if she waited until full retirement age, or better yet until she was 70. Stop with the hard sell; she wanted it at 62, period!

Why did she take it early? To illustrate, I did a little investigating on the Social Security Administration's website and used its retirement planner. Continue reading "When Should You Take Social Security? 62 or Full Retirement Age?"