By Peter Wechsler
President & Co-Founder, Franklin Retirement Solutions
[email protected]
I’m writing this column on our last day in the Canadian Rockies for a conference in Banff. Rob told me it’s very close to where the G-7 meeting was held last week. Spectacular views, with the sunset tonight at 10:01 pm. Don’t visit for warmth—it’s been in the 40s and 50s since we arrived.
Last week, the Social Security Administration gave their latest predictions for when benefits will need to be cut if Congress and the president don’t take action soon.
Right now, they estimate the Social Security trust funds will be exhausted by 2034. With no fix, benefits would need to be cut by 19%. So, your $3,000 monthly check would be cut to $2,430. Very scary for a lot of folks.
Medicare is in a similar bind with only 89% of benefits being paid starting in 2033.
Social Security is the easiest budget problem to fix, but Congress won’t touch it…yet. Both parties are ignoring the urgency of the problem, but again, this could be fixed. As for Medicare, I have no idea how they would address this shortfall.
Folks challenge me all the time. “So Peter…you say it would be easy to fix Social Security. How so?” It could be a combination of changes. Here goes:
- FRA-Full Retirement Age: Raise it again for younger people, many of them are our kids. We’ve gone from FRA at 65 to 66 and now to 67 for those born in 1960 or later. Time to move towards age 68 FRA for people below age 55 or so.
- SS Taxes Out of Your Paycheck: Right now you and your employer pay 6.2% of your pay into the Social Security system. They could raise this slightly, to maybe 6.4% or 6.5%. Actuaries say this would make a big difference.
- Early Retirement Age: They could gradually raise the early retirement age from 62 to 63 over a period of years similar to how they raised the FRA from 65 to 67. So far, they have never touched age 62 as when you could begin collecting.
- COLA Adjustment: It wouldn’t be very popular, but Congress could change the way they calculate the annual cost of living increase.
- Change Maximum Paid by High Wage Earners: No matter how much you earn from wages, they stop taking out that 6.2% from your paycheck when your year-to-date earnings hit $176,100. They could raise this limit to maybe $400K or $500K before they stop taking out SS from your paycheck. They could stop it when earnings hit $176K and have it kick back in at $500K or maybe at $1 million, having the very high earners pay more into the system.
Would anybody be happy? Of course not, but we must fix the problem.
Here’s some interesting facts about Social Security payments today:
• In PA, the average benefit paid is $2,052 a month while the median benefit is $2,012 per month.
• In NJ, the average benefit paid is $2,109 a month while the median benefit is $2,172 per month.
• The maximum benefit for those who start collecting at 62 is $2,831 per month.
• The maximum Full Retirement Age benefit available to people retiring this year is $4,018 per month.
• The maximum benefit for those waiting until age 70 to start collecting is $5,108 per month.
• The average monthly benefit paid to a 75-year-old is $2,156 a month.
• The average monthly benefit paid to an 85-year-old is $2,190 a month.
• 30% of folks start collecting Social Security at age 62
• Only 6.5% of folks wait until age 70 to begin collecting.
Not collecting Social Security yet? If you have an account set up at www.ssa.gov you can log in anytime to see what your future benefits will be. If you don’t have an online account, the SSA will send you a statement every 5 years from age 25 to 60, then annual paper statements. To set up an online account, just go to www.ssa.gov and build your account.
Next time you talk to your senator or congressperson, you might want to ask them how they plan to save Social Security from benefit cuts that are not many years away.
Enjoy the cooler weekend…
Peter
Disclaimer:
Peter Wechsler and/or Franklin Retirement Solutions are not affiliated with or endorsed by the Social Security Administration or any other government agency.