Jimmy Rodefer: Social Security: for most Americans, the elephant in the room is a mouse

Social Security is seen by too many Americans to be their retirement elephant in the room: they expect its size to carry the financial weight of their post-career years. It comes — too often — as a shock when they find the elephant looks more like a mouse. In September, this column talked about the importance of end-of-year financial planning, which for many includes Social Security decisions. Accountants, financial advisers and others in the financial planning field are concerned that too many people — from business owners to employees — are doing one of two things:

1. Expecting Social Security to ensure their retirement standard of living, so they either put off saving or don’t save at all.
2. They’re too busy dealing with today to think about tomorrow.

In Aug. 2014, a Bankrate.com survey showed that one-third of all working-age adults haven’t saved a cent toward retirement. According to the Oct. 13, 2015 “Basic Facts” from the Social Security Administration, 39.5 million American workers are receiving an average monthly benefit of $1,335; disabled workers receive an average of $1,165. That’s $16,020 and $13,980, respectively. Those amounts can supplement retirement savings, but unless you’re into a life of Thoreau-at-Walden Pond-austerity, those monthly figures aren’t going to provide comfortable ride through the golden years.

Among other illuminating data from the Social Security administration:

• “Social Security benefits represent about 39% of the income of the elderly.
• “Among elderly Social Security beneficiaries, 53% of married couples and 74% of unmarried people receive 50% or more of their income from Social Security.
• “Among elderly Social Security beneficiaries, 22% of married couples and about “47% of unmarried people rely on Social Security for 90% or more of their income.”

Social Security is a strategic accounting function, to a significant degree. The strategies involve an analysis if what you’ll need, when you’ll need it, and how much money is involved. Much depends on full retirement age (FRA). For Social Security purposes there are 13 different FRAs between 1937 and 1960. From 1937 to 1959 FRA is between 65 and 66 years, 10 months. If born after 1960, FRA is 67. Age 62 is the earliest someone can begin drawing Social Security benefits. However, the earlier these benefits are taken, the smaller the monthly check.
There are even reasons to wait beyond FRA to begin accepting benefits. For example, a person reaching FRA can suspend their Social Security payments, electing to draw them later to receive larger monthly checks.

People are sometimes surprised to learn that there’s a financial cost if they elect to take Social Security payments early and still work to supplement their incomes. In 2015, $1 is withheld for every $2 earned for incomes over $15,720. That’s just one scenario. Social Security planning requires consideration of strategies within strategies. That may be part of the problem, that the complications of deciding what to do motivates people to do exactly the wrong thing, which is nothing.

Account for it as you might, if Social Security is your ticket to retirement, you may find yourself sitting — unwillingly — in the cheap seats.

You may view the original article here.