March 14, 2018 — A crisis will affect Social Security just 16 short years from now, and it has some experts rethinking their strategies for when to start taking Social Security. Instead of urging people to wait until age 70, some are recommending beginning at age 66.
In 2034 the Social Security reserves are expected to be exhausted. With no reserves available, the only money available to pay benefits is what comes in from current worker and employer contributions into the program. Sadly, that won’t be enough; starting in 2034 there will only be enough coming in to pay 77% of scheduled benefits.
A new recommendation to think about
Mark Hulbert of Market Watch reported on the argument posed by Richard Band, editor of the Profitable Investing advisory service, in “Why it might be better to take Social Security at age 66 instead of 70“. To Band, the question of when to start taking the benefit hinges on your confidence in the federal government. The advisor, who is 66, facetiously wonders if anyone really believes Uncle Sam, saddled with a $20 trillion—and rapidly rising—national debt, will be able keep his Social Security promises.
Take the money and run
Bond thinks maybe the best idea is to take his Social Security at the Full Retirement Age (66 for people who are currently that old). Choosing the ‘take the money and run’ strategy now instead of at 70 would give him four more years of benefits at promised levels. To test his theory he ran a cost-benefit analysis that shows a modest advantage if he starts collecting at 66. If a person now 66 makes it to the average life expectancy (84), he would only have had 2 years with a reduced benefit. The younger you are now, the stronger the argument for taking the benefit at 66 rather than 70. That is because you more likely to live past 2034 and therefore have more years getting only 77% of what you were promised.
Washington – you have a problem
The Social Security problem has been coming for years, but as every month goes by without action, the fix gets harder and harder. Potential solutions abound. Lawmakers could start making small benefit cuts now, eliminate or reduce the COLA formula, make 100% of compensation eligible for FICA taxes, raise the eligible age to collect, and/or increase the contributions. Tapping the debt-laden general treasury to fund the deficit seems highly unlikely. Every solution means pain for some beneficiary, as well as angry constituents. But Congress can’t even pass a budget, much less want to hop on the third rail that Social Security represents.
No politician would vote to cut Social Security for fear of being tarred and feathered. As the crisis gets nearer, however, Congress has another option. Just ignore the problem and let it happen. Instead of risking their careers by solving the problem, they can do what they do best – do nothing, then start an investigation and blame the other party!
The old argument for waiting to age 70
Most of our Members know that Topretirements has had a consistent, against the grain, philosophy on this issue – we think you should wait as long as you can to start taking your benefit. But, shocker! – we are rethinking that position based on the 2034 crisis.
Only 2% of men delay their Social Security benefits until age 70 (the percentage of women is slightly higher, but both rates are disappointing). We have always recommended waiting, predicated on five main conditions/reasons:
– You have no reason to believe you AND your spouse will die before the breakeven age of about 82
– You don’t need the money to live on
– Your benefits increase by 8% every year you wait past the age of 62 (you get 32% more at age 70 than you would at 66)
– Even if you die relatively early your spouse will get all of your higher benefit for life
– Because the benefit is indexed for inflation, you’ll get more dollars because your base is higher.
The decision on when to start your Social Security benefits is complicated and highly personal. You have to make your own decision based on what you and your advisors think. Although not convinced yet, we are warming to the idea of starting at 66 instead of 70, particularly for people who haven’t turned 66 yet.
What can you do
Recent history makes it clear our politicians lack the courage to do anything. This issue is a big deal for every American, born and unborn. We are not advocating a free ride for anyone, and we don’t want to throw our children and grandchildren to the wolves to protect our own benefits. But something has to be done that is equitable to everyone. We recommend contacting your congressional representatives and asking specifically what they are going to do to fix the problem.
Comments? Are you worried about Congress failing to act and thus facing a big benefit cut in 2034? Does this affect your claiming strategy? Please share your thoughts in the Comments section below.