Social Security Articles

Cheat Sheet / Updated 09-16-2024

Social Security is part of nearly every American’s life in retirement, if not sooner. If you’re like most people, you’re aware that when you start collecting retirement benefits affects how much money you get, but you’re not sure what that means for you. Armed with answers to some key questions, you can get the most out of your Social Security retirement benefits. As you plan for retirement, you need to know how much Social Security retirement income you can expect. Finally, If you’ve applied for Social Security disability benefits, your initial application may be denied, but you’re not out of options: You can appeal Social Security’s decision through a multi-phase process. Copyright © 2024 by AARP. All rights reserved. AARP is a registered trademark. Published by John Wiley & Sons, Inc., Hoboken, New Jersey

Article / Updated 03-22-2023

Copyright © 2020 by AARP. All rights reserved. Something about Social Security stirs the popular imagination. Rumors and phony stories have attached themselves to the program from the start. Sometimes you can identify the grain of truth that sprouts into a tall tale. Other times you can’t. Before Social Security got off the ground in the 1930s, newspapers in the Hearst chain spread the story that people would have to wear dog tags stamped with their Social Security numbers. (The dog tag idea actually was proposed but never approved.) Many people continue to believe that Social Security maintains an individual account with their contributions in it. The reasoning is easy to see, but the story isn’t true. Rumors swirl about the state of Social Security’s finances, hidden meaning in the numbers, and other topics that find fertile ground on the internet and are spread through social media. Unfortunately, myths can be harmful because they undermine public understanding of Social Security and confidence in the program at a time when the nation needs a constructive, fact-based discussion. Myth: Social Security Is a Ponzi Scheme This is a claim made by critics of the program who really are saying that Social Security is inherently unbalanced and doomed to fail. Their charge is based on a superficial comparison of Social Security with a type of fraud associated with Charles Ponzi, a charismatic con artist in the early 20th century. Ponzi’s infamous scheme involved speculation in international postal coupons. He lured his victim investors by promising returns of 50 percent at a time when banks were paying around 5 percent interest. Early investors were paid with money from later investors, a hallmark of Ponzi schemes. Such frauds may work for a little while, but inevitably they collapse. (Just ask Bernie Madoff.) The misleading comparison of Social Security to a Ponzi scheme is based on the fact that Social Security does require one group (workers) to help support another group (retirees and other beneficiaries). This system is sometimes described as a pay-as-you-go system. The Ponzi label falls apart, however, when you think it through. For one thing, Social Security doesn’t rely on a soaring base of contributors, as Ponzi schemes do. Instead, it requires a somewhat predictable relationship between the number of workers and beneficiaries, along with adequate revenues. A lower U.S. birthrate starting in the 1960s and increasing life expectancy that has resulted in an aging of the population are significant causes of Social Security’s expected shortfall. Social Security has other fundamental differences from a Ponzi scheme. Importantly, it’s transparent. Each year, the Social Security Administration (SSA) releases information about its financial state in exhaustive detail, along with projections 75 years into the future, based on different economic assumptions. Scams, by contrast, thrive on secrecy and deception. And unlike a Ponzi scheme, the money not used to pay current benefits has built up a surplus of $2.9 trillion. Another basic difference between Social Security and a Ponzi scheme is in the goals. A crook hatches a Ponzi scheme to get rich at others’ expense. Social Security provides social insurance to protect people. Money goes from one generation to help support another generation. Your tax contributions help support your parents. One day, the contributions of future generations will help support you. Myth: Your Social Security Number Has a Racial Code in It The nine-digit Social Security number has long fascinated people, because it is a unique, personal identifier in a nation that cherishes individuality. One myth is that the number contains a code that identifies the race of the cardholder. According to the myth, the code can be found in the group number, the fourth and fifth digits, in the middle. In one version of the rumor, a person’s race could be determined by whether the fifth digit in the Social Security number is even or odd. (Group numbers range from 01 to 99.) One explanation for this myth is that people have misinterpreted the meaning of the term group number, wrongly assuming that it referred to race. This rumor has caused some people to worry that their Social Security number makes them vulnerable to discrimination by potential employers or others who may spot the racial code in an application. According to the SSA, however, the term group number refers simply to an old system of numerical grouping that traces back to Social Security’s early days, when everyone’s records were stored in paper files. Employees used the two-digit group number to help organize the files. If you want to find possible meaning in your Social Security number, look to the first three digits — the area number. Before 1972, the first three digits were based on the state where the card was issued; after that, they were based on the mailing address on the application. This is no longer true, however. In 2011, the agency began assigning the first three digits randomly, as part of a strategy to protect people from identify theft. Myth: Members of Congress Don’t Pay into the System This myth gets its strength by combining two rich symbols, Social Security and Congress. Variations of the myth include the idea that lawmakers get a special break on Social Security payroll taxes and that they’re allowed to collect benefits at an earlier age than the rest of us. In the past, Congress and the rest of the federal government were covered under the Civil Service Retirement System, which was created years before Social Security. Under a 1983 law, however, all three branches of the federal government were steered into Social Security. As a result, since 1984, members of Congress, the president, the vice president, federal judges, and most political appointees have been required to pay taxes into the Social Security system like everyone else. And the same rules apply to them as apply to you. Vestiges of the old setup endure for some federal employees. Those hired before January 1984 aren’t required to participate in the Social Security system. All federal employees hired since 1984, however, make Social Security payroll tax contributions like everyone else. That includes lawmakers. Myth: Social Security Is Going Broke People have heard so much talk about Social Security’s finances that it’s easy to see why they may think the program is going off the cliff. That’s not the case, however. Social Security can pay full benefits until about 2035 — and it can continue to pay about 80 percent of benefits thereafter, according to the program’s trustees. The gap is caused by the fact that a relatively smaller number of workers will be supporting a relatively higher number of retirees. The large number of Baby Boomers retiring, combined with the smaller number of individuals paying into the system through the payroll tax (because of lower birthrates), has caused Social Security benefits to surpass the amount of payroll taxes coming in. To make up for this shortfall, Social Security will increasingly draw down its trust funds of $2.9 trillion to supplement the revenues that will continue to pour in (primarily through payroll taxes). The funding gap can be closed through a combination of modest tax increases and/or phased-in benefit cuts for future retirees. Although it has been difficult for lawmakers to make a deal, various policy options show that it’s possible. Assertions that Social Security is running out of money erode the confidence of younger people, who will need Social Security one day. Polls have shown, for example, that substantial numbers of future beneficiaries — as high as 80 percent — worry Social Security won’t be there for them when they reach old age. This undue pessimism helps reinforce the next myth. Myth: The Social Security Trust Funds Are Worthless Social Security revenues stream into U.S. Treasury accounts known as the Social Security trust funds. One trust fund pays benefits for retirees and survivors; the other pays benefits for people with disabilities. (The revenues come from the payroll tax and some of the income tax paid by higher-income retirees.) Most of the trust-fund money is used quickly to pay benefits. But a big surplus has developed over the years — about $2.9 trillion. Under the law, Social Security is required to lend the surplus funds to the federal government, which is then obliged to pay the loan back with interest. This lending takes place through investment in special-issue, medium- and long-term Treasury securities that can always be redeemed at face value. This sanctioned lending, by the way, is the reason you may sometimes hear claims that the government “raids” the Social Security trust funds. Those who contend that the trust funds are worthless are really predicting that the federal government won’t make good on that debt — even though the bonds are backed by the full faith and credit of the United States, just like other Treasury bonds held by the public. Investors throughout the world retain confidence in this nation to make good on the debt it owes, as demonstrated by the ongoing demand for U.S. Treasury bonds, even at a time of government deficits and budget battles. In the coming years, Social Security will rely increasingly on income from bond interest and actual bond sales to pay benefits. That means the U.S. government faces a large and growing bill to pay Social Security back for the money it has borrowed over the years. There are no recommendations here on how the government should pay its bills. But if you consider those matters, just remember that Social Security isn’t the cause of the nation’s current deficits. Myth: You’d Be Better Off Investing in Stocks You hear this myth more often during boom times, but for the average person, it’s highly dubious at any time. To be clear: It’s important for people to save as much as they can, and stock investments may be an important element in your savings. But the notion that you’d be better off without Social Security usually doesn’t hold up. For one thing, Social Security and stock investing aren’t substitutes for each other. Unlike stocks, Social Security provides broad protections for you and your loved ones, including benefits for disability, survivors, and dependent family members. These benefits may be payable if tragedy strikes at an early age, before you’ve had the many years needed to build up a nest egg. Also, Social Security shields retirement income from risks that are inherent in the financial markets. Although stock returns may be greater, stocks are more volatile. If a market collapses at the wrong moment, your holdings can be hammered. Social Security, by contrast, provides a guaranteed benefit. If you truly want to save for yourself, it helps to consider how much of a nest egg you need to match the protections you get from Social Security. You could buy an annuity to provide monthly income under certain circumstances. But what would it cost? Suppose you were trying to equal the average Social Security retired worker benefit (about $1,500 a month in 2020). You would need hundreds of thousands of dollars to purchase a survivor annuity that matched the benefit, starting at age 66 and protected for inflation. A higher-paying annuity meant to equal Social Security’s family maximum for top earners (more than $4,500 a month) would cost nearly a million dollars. Annuity price tags vary as interest rates change; also, insurance companies charge different amounts, so you can’t find one lasting dollar figure. Neither of the products described here equals Social Security’s protections. They don’t cover family members while you’re alive, including a spouse or children, nor do they offer child survivor benefits when you die. Could you save half a million bucks? Suppose you had 40 years to build up the nest egg. At a 3 percent rate of return, you’d have to set aside about $6,500 per year. Most people don’t save that much. Many people have nothing left over by the time they pay the monthly bills. Of those who do save, many could set aside more. Also, many people take money out of their nest eggs when needs arise. Unfortunately, such withdrawals can do lasting harm. Saving requires long-term discipline and possibly short-term sacrifice. About one in four adults who have yet to retire report no retirement savings or pension, according to a Federal Reserve study in 2019. While savings do increase with age, millions of older workers lack adequate nest eggs. Imagine how much more insecure your retirement would be if you had to depend completely on yourself to save for retirement. Maybe you could pull it off, but most people are better off with the guarantees of Social Security. Myth: Undocumented Immigrants Make Illegal Social Security Claims Tales that undocumented immigrants are soaking up Social Security benefits pick up steam periodically. As one popular version has it, Congress is about to consider a bill making benefits legal for workers who are in this country without authorization. This notion makes a lot of people angry. It’s also possible that the myth is spread when people stand in line at a Social Security office and make assumptions about others around them. Whatever the cause, the myth isn’t true. Plus, the myth obscures an irony: Undocumented workers actually add revenue to the system through the Social Security taxes that are taken out of their pay, while most never claim benefits. Under the law, undocumented immigrants are prohibited from claiming Social Security, as well as most other federal benefits. (Certain exceptions to this ban are allowed, such as for emergency medical treatment and emergency disaster relief.) In reality, some undocumented workers use fake Social Security numbers to get jobs. Payroll taxes are then deducted from their pay, just as they are from everyone else’s, and credited to the Social Security trust funds. Generally, these workers don’t collect benefits. In fact, SSA estimates that undocumented immigrants contributed $12 billion net — that is, revenue paid into the system over benefits paid out — into the Social Security funds in 2010. Myth: When Social Security Started, People Didn’t Even Live to 65 This observation shows how the “facts” can be misleading. Its underlying point — that Social Security was designed to pay little in benefits because people wouldn’t live long enough to collect them — isn’t true. Back when Social Security was created, life expectancy was shorter; a high rate of infant mortality meant that many people didn’t reach adulthood, and life expectancy at birth was especially low. (In 1930, it was about age 58 for men and 62 for women.) If you survived childhood, though, you could expect to live many more years. Among men who lived to 21, more than half were expected to reach 65. If you reached 65, your life expectancy came to about 78. (Women lived longer than men, as they still do.) Life expectancy at 65 has increased since the 1930s, to be sure, but much less dramatically than life expectancy at birth. The architects of Social Security knew the program would serve many millions of beneficiaries as time passed. They concluded that age 65 fit with public attitudes and could be financed through an affordable level of payroll taxes. The notion that Social Security was designed to cost little because people died early is simply not true. Myth: Congress Keeps Pushing Benefits Higher Than Intended Commentators sometimes assert that, over the years, generous lawmakers have hiked Social Security benefits far beyond the intention of the program’s founders. These heaped-on benefits, the story goes, explain why Social Security faces a future shortfall. It’s true that Congress has enhanced benefits on several occasions since the program’s initial approval in 1935. But such changes were consistent with the intent of Social Security as a social insurance program for all Americans. By the important measure of replacement rates (how much of your pre-retirement income you get back in benefits), Social Security has been stable over the decades. In fact, replacement rates are now declining because of the gradually increasing age for full retirement benefits that Congress approved in 1983. When Social Security first began, benefits were limited to payments to retirees. The intent of the program, however, was to provide meaningful social insurance for certain risks in life and to extend such protections to dependent family members. Family benefits (including for survivors) were added in 1939, followed later by coverage for disabled workers and their dependents. Automatic annual cost-of-living increases took effect in 1975 to replace the ad hoc approach to inflation adjustments that had been followed previously. The fallacy is that these reforms undermined Social Security’s long-term stability. Studies have shown that the addition of survivor and auxiliary benefits was offset to some degree by slower growth in benefits paid directly to workers. The anticipated shortfall reflects the fact that relatively fewer workers (because of a lower birthrate since the 1960s) will be supporting a bigger population of longer-living retirees in the coming years. Myth: Older Folks Are Greedy and Don’t Need All of Their Social Security As some tell it, most older Americans spend their days being pampered in posh retirement villas or country clubs. According to the stereotype, these misers have no concern for young people — they prefer to take advantage of Social Security benefits they don’t need. Talk about myths! Over half of older Americans depend on Social Security for at least 50 percent of their retirement income. The benefits keep more than one-third of older Americans out of poverty, often by a thin margin. Are benefits too generous? The average monthly payment for a retired worker is about $1,500 (as of 2020). That’s about $18,000 a year. Not only do many millions of people struggle with poverty and near poverty, but recent estimates paint a bleaker picture than had previously been thought. A U.S. Census Bureau alternative poverty measure in 2018 found a 13.6 percent poverty rate among Americans age 65 and up. Without income from Social Security, the poverty rate for older Americans would nearly triple — soaring to nearly 40 percent. Such figures make clear what common sense may tell you: A great many older people rely on Social Security to survive. The myth of greedy seniors is further contradicted by the interdependence of generations, which may be growing. An increasing number of older people are helping to support their adult children and grandchildren, and studies have shown a big rise in the number of interdependent, multigenerational families. A U.S. Census survey found that slightly more than 7 million children — nearly 10 percent of all kids — live in families that include a grandparent. Sometimes commentators try to argue that retirees and young people are at odds economically, as if older Americans are grabbing benefits they haven’t earned and don’t deserve. Think of the older people you know personally, people in your own family, and ask yourself: Does that ring true?

Article / Updated 03-22-2023

Copyright © 2020 AARP. Selecting the right time to begin Social Security benefits is a personal matter. Only you know what makes sense for your family. But you should keep in mind some key points when you make this critical choice: Make sure that you know when you qualify for full benefits, but remember, you have broad discretion about when to claim. Refer to the table. Full Retirement Age Based on Year of Birth Year of Birth* Full Retirement Age 1937 or earlier 65 years 1938 65 years and 2 months 1939 65 years and 4 months 1940 65 years and 6 months 1941 65 years and 8 months 1942 65 years and 10 months 1943–1954 66 years 1955 66 years and 2 months 1956 66 years and 4 months 1957 66 years and 6 months 1958 66 years and 8 months 1959 66 years and 10 months 1960 and later 67 years * If you were born on January 1, refer to the previous year. Full retirement age may be slightly different for survivor benefits. Know your benefit. By using the Social Security retirement calculators, you can quickly get an idea of the benefit you’d receive before, at, and after your full retirement age. Each year you wait to collect beyond your full retirement age will add 8 percent to your benefit. Each year you begin collecting before your full retirement age will reduce it between 5 percent and 7 percent. In other words, the earlier you retire, the less Social Security you get each month. For many people, that’s a powerful argument to hold off claiming benefits. Be realistic about your life expectancy. If you don’t like to think about how long you’ll live, get over it. Your life expectancy, and the possibility that you may exceed it, should be factors when you make plans for Social Security and retirement in general. Of course, no one knows how long you’ll live. But there’s plenty to consider: Do people in your family tend to live long? How would you grade your own lifestyle in terms of fitness, exercise, diet, and other personal habits that affect health? How healthy are you? Do you suffer from a chronic condition that is likely to shorten your life? Do you have a lot of stress? If so, do you have ways of managing that stress that make you feel better? Do you lug around a lot of anger and worry? If so, can you do anything about it? Think about all your sources of income and your expenses. Consider your savings, including pensions, 401(k)s, IRAs, and any other investments. Make realistic calculations about how much money you need. Look at several months of statements from your checking account and credit cards to review what you spend on and look for waste, while you’re at it. Ask yourself: Do you have the option to keep on working? Are you physically up to it? Think about your spouse. If you die first, it could determine how much your spouse gets for the rest of his or her life. Consider your spouse’s life expectancy and financial resources. Does he or she have a chance of living for many more years? If so, what are the household finances (beyond Social Security) to support a long life? Does the spouse have health issues that could cost a lot of money in the future? Husbands should bear in mind that wives typically outlast them by several years, because wives are typically a few years younger and because women have a longer life expectancy than men. Is that the case in your marriage? Talk it out if necessary. Couples should discuss this topic together, even though, in many marriages, one person may be the one who makes most of the financial decisions. You also may want to discuss your finances with a financial planner, especially if you’ve built up a nest egg and you have questions about how Social Security income will fit in. Be clear on the trade-offs. You can choose between a smaller amount sooner or a bigger amount later. It often makes sense to talk with a financial advisor, especially if you have investments to help support your lifestyle in retirement. Your decision about when to start retirement benefits will affect your family income for the rest of your life. Experts agree that it is often unwise to claim Social Security retirement benefits as soon as possible (age 62). But that is not always the case. Early claims may make sense for individuals who need the income for necessities and lack other financial resources to pay for them or who do not expect to live much longer. Social Security becomes more important the older you get You can’t make the stock market go up or control whether someone will give you a job. You can’t make your house jump in value if the whole neighborhood is sinking. You can’t go back in time and start an early nest egg if you spent like crazy when you were younger. You can’t make your employer keep a pension plan. And you can’t prevent the cost of living from rising. But you do have some influence over the size of your Social Security benefit, based on when you claim it. This matters for a little-recognized reason: The older you become, the more likely you are to depend on Social Security. The more years pass, the more you need Social Security’s protection against inflation, known as the cost-of-living adjustment. This provision is a big deal (even if the adjustment is small some years) because the effect of inflation over time can be drastic. At a rate of 3 percent inflation, the buying power of unprotected income plunges by half over a 20-year period. Even if you’re fortunate enough to get a private pension, it’s probably not shielded against inflation, and rising prices erode it over time. Other resources can boost your retirement security but are far from a sure thing. Earnings from even part-time work may go a long way. But work may become undesirable or physically difficult in later years. Older Americans have the highest rates of home ownership. But older people still may have mortgages and other debts to consider — their debt levels have actually risen over the years. Social Security benefits compare favorably with many other sources of income, because they’re protected partially from taxation. Most seniors don’t have to pay a penny on their benefits. Even the most affluent pay income taxes on 85 percent of their benefits, not 100 percent. A 2019 report by the Economic Policy Institute found that nearly half of working families have no savings at all. Findings like that help explain why so many people are afraid they’ll last longer than their money does. If their fears are borne out, Social Security will play a critical role in filling the vacuum.

Article / Updated 07-19-2022

Copyright © 2015 AARP After you figure out your full retirement age, you can get a ballpark idea of your monthly benefit. Currently, the average retirement benefit is about $1,328 per month (in January 2015), but benefits go much higher, depending on your earnings history and when you begin collecting. It’s easy to get at least a rough estimate of your retirement benefits. Just use one of the SSA’s online calculators — the Social Security Quick Calculator or the Retirement Estimator. The Retirement Estimator is especially useful, because it also gives you projected amounts for retiring early at 62, waiting for the full retirement age, or delaying all the way until 70. (You also can get estimates customized to your personal situation by using AARP’s Social Security Benefits Calculator.) If you use the SSA’s Retirement Estimator, you’ll see roughly how much Social Security you could get, especially if your earnings don’t skyrocket or crash between now and the time you retire. If you haven’t yet done so, you can use the Retirement Estimator as a starting point to think about how much money you can count on in retirement. Whether the Social Security numbers look small, large, or in between, remember that Social Security is meant to be just one part of your financial foundation. You stand to get much more money if you can delay collecting Social Security past your full retirement age. For example, if you were born between 1943 and 1954, your Social Security payment at 62 is 25percent lower than if you wait until 66 (your full retirement age). If you hold off to age 70 — four years past your full retirement age — the benefit balloons by 32 percent. These differences can add up to real money over the years — or decades. Consider the following example: Elisa was born in 1953 and wants to know how she would be affected by choosing different dates to retire. She goes to the Retirement Estimator tool and quickly types in some basic information, including her name, Social Security number, state of birth, and mother’s maiden name. She also plugs in the $160,000 she earned last year. The Retirement Estimator lists the estimated payments she would get for retiring at three different ages. If Elisa waits until her full retirement age of 66, she’ll get about $2,615 per month. If she waits until 70 to collect benefits, she’ll get about $3,512 per month. And if she wants to start as soon as possible, at 62, she’ll get a more modest $1,930 per month. Elisa knows that longevity runs in her family, so she wants to find out how much she’ll collect from Social Security if she lives to 90. To get the answer, she calculates the number of months she would receive benefits in three different cases — starting at 62 (336 months), starting at 66 (288 months), and starting at 70 (240 months). Then she multiplies the number of months by the estimated benefit provided by the online tool. If Elisa starts the benefit at 62 and lives to 90, she could end up with more than $648,000 over her lifetime, not even counting increases for inflation (336 months between 62 and 90, multiplied by the estimated benefit of $1,930 per month for benefits starting at 62). If she starts at 66, her lifetime collection would exceed $753,000. And if she starts the benefit at 70, she ends up with more than $842,880. The difference between starting benefits at 62 and at 70 comes to $194,400 for Elisa. Your decision on when to begin retirement benefits makes a real difference in your monthly income. The numbers here are based on a retirement age of 66 and a monthly benefit of $1,000. They may differ based on your year of birth and other factors. Credit: Source: Social Security Administration Waiting to take retirement benefits beyond your full retirement age could prove especially important for Baby Boomers and, right behind them on the age ladder, members of Generation X. For people born in 1943 or later, the retirement benefit expands at a rate of 8 percent per year (or 2⁄3 of 1 percent per month) for each year you delay claiming (up to age 70) after reaching full retirement age. Year of Birth Yearly Rate of Increase Monthly Rate of Increase 1933–1934 5.5 percent 11⁄24 of 1% 1935–1936 6.0 percent 1⁄2 of 1% 1937–1938 6.5 percent 13⁄24 of 1% 1939–1940 7.0 percent 7⁄12 of 1% 1941–1942 7.5 percent 5⁄8 of 1% 1943 or later 8.0 percent 2⁄3 of 1% If you were born on January 1, refer to the previous year.

Article / Updated 11-05-2021

Copyright © 2020 AARP Social Security faces a shortfall. To pay benefits, Social Security will increasingly rely on its trust funds because revenues from the payroll tax aren’t sufficient. After about 2035, when the trust funds are exhausted, the program is projected to have enough income to cover about 80 percent of promised benefits. That means the country faces choices about how to close the gap. Social Security issues aren’t limited to its solvency, however. Changes in lifestyle since the 1930s have prompted other ideas to make the program more fair and helpful in the 21st century. This article outlines ten major policy options the nation may consider for the future of Social Security. The menu of changes is potentially larger. But these are among the most prominent approaches that have been debated for years by experts of varying political views. Millions of people will be affected by how these issues play out. Whether to Increase the Earnings Base You make payroll tax contributions to Social Security on earnings up to a limit ($137,700 in 2020). This cap is known variously as the wage base, contribution and benefit base, and taxable earnings base. It has historically served as a limit on the payroll taxes that you and your employer each pay to the program. Most workers (more than nine out of ten) earn less than the cap. But in recent decades, a small percentage of workers has been receiving a growing share of total U.S. earnings. If you think about all earnings as a pie, the slice that goes untaxed for Social Security has been getting bigger. Raising the earnings base is a way to make the pie look more like it used to and boost revenues for Social Security. For example, increasing the earnings base such that 90 percent of earnings would be subject to the payroll tax would reduce Social Security’s shortfall by 26 percent (if higher earners got somewhat higher benefits) or by 35 percent (if additional taxed earnings weren’t included in the benefit calculation), according to 2019 projections by the Social Security Administration (SSA). To bring in more or less money, the earnings base could be increased by a higher or lower amount. Eliminating the cap altogether is a way to greatly decrease the shortfall, but such a measure could weaken the link between contributions and benefits if the additional taxed earnings aren’t used in the benefit calculation. The argument against increasing the earnings base is that high earners already get less of a return on their contributions than lower-income workers get, because Social Security benefits are progressive by design. Also, raising the earnings base amounts to a big tax hike on high earners. But supporters say an increase goes a long way toward fixing the problem, and the burden on high earners wouldn’t be onerous. Whether to Cover More Workers You and the people you know probably are covered by Social Security. Most workers are. The largest group outside the system is about 25 percent of state and local government employees who rely on separate pension systems and don’t pay Social Security taxes. Bringing newly hired state and local government workers into Social Security would raise enough revenue to solve about 6 percent of the long-term shortfall. State and local governments may oppose such a measure since it could adversely affect the financial stability of their pension systems. The federal government would have to provide a large cash infusion to those pensions if Social Security siphoned off new public employees who aren’t now covered. Such a proposal, however, could bolster Social Security’s finances and simplify administration of benefits. That’s because the way the program is set up today, Social Security must adjust payments for former government workers who spent part of their working lives contributing to public pension plans but not to Social Security. In addition, newly covered public employees would benefit from disability and survivor insurance that is either weak or nonexistent in some state and local plans. Whether to Raise Taxes Raising Social Security payroll taxes is one way to address the financial shortfall head-on. Even small increases in tax rates go a long way toward shoring up the program’s finances over time. For most recent years, wage earners have paid a Social Security tax of 6.2 percent up to a certain threshold of income ($137,700 in 2020). Employers have paid the same rate as wage earners. The self-employed have paid 12.4 percent (both the employer and employee share). Raising the Social Security payroll tax from 6.2 percent to 6.5 percent would eliminate about 20 percent of the shortfall; raising it to 7.2 percent could close just more than half the gap. A higher increase would have a bigger impact, and a smaller increase would do less. Any increase could be phased in. This approach would eliminate much of the problem, and it polls well with the public. But it also raises questions. Critics voice concerns about the economic impact of higher payroll taxes and the possibility that employers may respond to a higher tax by cutting other payroll costs, such as jobs. Tax revenues for Social Security could be raised in other ways, such as by dedicating revenue from the estate tax or increasing income taxation of Social Security benefits. Neither, however, would generate enough revenue to make a significant dent in the problem. Another approach would be to tax contributions to all salary reduction plans (arrangements in which you’re able to divert some of your pretax income to certain areas, such as transit, flexible spending, dependent care, and health-care accounts). Extending the Social Security payroll tax to all such areas could reduce the shortfall by 9 percent (but such a move would hit consumers who use such accounts to help cover necessities). Whether to Cut Benefits Benefit cuts are nothing to cheer about, but they would save money. Further, they could be structured in a way that doesn’t hurt current retirees, soon-to-be retirees, and low-income individuals. Any changes could be phased in after a long lead time, giving younger workers years to adjust their plans for the future. The formula that calculates benefits could be altered in a manner that protects individuals who depend most heavily on benefits, while landing hardest on those who can afford the change. But of course, the fine print would determine the impact. And the more people who are protected, the less savings are achieved. Note: Policymakers usually include some combination of benefit cuts and tax hikes when they devise plans to strengthen Social Security. Still, a targeted reduction in benefits could undermine the broad public support for Social Security as a program in which everyone pays in and everyone gets benefits. The more cuts fall on the middle class, the more they erode retirement security for people already facing a squeeze. The more cuts fall on high earners, the less support high earners may have for Social Security. Whether to Modify the Inflation Formula Social Security benefits are adjusted to keep up with the cost of living. This protection is extremely valuable to beneficiaries and becomes even more so the longer you live. Without the annual cost-of-living adjustment (COLA), the purchasing power of your benefits shrinks over time. Private pensions usually lack this protection. The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used as the guide in adjusting Social Security benefits to rising prices. One proposal to save money would be to use a different measure known as the chained CPI. The chained CPI builds in the idea that consumers switch their purchases if the price of a particular good goes up too much. The notion is that if the price of ice cream soars, you may switch from eating Fudge Ripple to munching on cookies. If filet mignon is getting too pricey, maybe you’ll reach for pork chops. The chained CPI rises about 0.3 percentage points less each year than the CPI-W. That means a chained CPI would save the Social Security program a lot of money — reducing the shortfall by about 20 percent because of slower-growing benefits. Unlike most savings proposals, an index that brings smaller inflation increases would affect current beneficiaries, albeit gradually, as well as future ones. Those receiving benefits for many years would eventually be hit the hardest. For example, you would see your benefit reduced by a bit less than 1.5 percent after 5 years, 3 percent after 10 years, and 6 percent after 20 years under a COLA based on the chained CPI. Opponents say a chained CPI may not reflect the reality of older consumers. They spend a lot more on health care than young people do, and health care costs are rising fast. Older consumers also may rely on various services that may be hard to substitute for. These reductions would mean a larger benefit cut over time. As a result, some proponents would cushion such reductions with a special boost in benefits for the oldest beneficiaries. Whether to Raise the Full Retirement Age The age you can get full Social Security benefits is gradually rising. One proposal to save money is to raise the full retirement age even further. This proposal saves a lot of money for the system while providing an incentive for people to keep working. Pushing the full retirement age to 68 could reduce the shortfall by about 17 percent. Raising it higher, as some suggest, would save even more. Such increases can be implemented very gradually to protect older workers. Proponents say this approach makes sense in an era of increased longevity. A 65-year-old man, for example, is expected to live on average to 84 — and many will live longer than that. This issue, however, is more nuanced than some people realize. It’s true that when Social Security was created, a newborn male wasn’t expected to reach 65. But for those who survived to adulthood, many lived into their late 70s and beyond — fewer than today, to be sure, but the gap isn’t as wide as some imagine. Nor has everyone benefited equally from increases in longevity. Many lower-income, less-educated workers haven’t enjoyed the same gains in life expectancy as their more affluent, more-educated counterparts, and by some gauges have suffered actual declines. Also, a later age for full retirement benefits could prove onerous for older workers with health problems or in physically demanding jobs. A related proposal would index Social Security benefits to increases in life expectancy (such as by linking the full retirement age to advances in longevity). This would put the Social Security program on sounder footing by providing lower monthly benefits to compensate for the fact that people are generally living longer. How to Treat Women More Fairly Social Security was designed with a 1930s-era vision of the family with a male breadwinner and a stay-at-home mom. Of course, many households no longer fit that model. The result is that some of Social Security’s benefit rules raise issues of fairness — issues that often affect women. For example, Social Security provides a nonworking spouse a benefit of up to 50 percent of the breadwinner’s benefit. Yet a working, nonmarried woman potentially gets a smaller benefit (depending on her earnings history) because she can’t rely on a higher-earning spouse for benefits. Benefits that go to single women, such as working moms, also may be reduced because of time spent outside the paid workforce, such as to raise a young child or take care of an ailing parent. One way to make Social Security fairer for working women would be to provide earnings credits for at least some of the time spent caregiving and raising children. For example, a worker might be awarded a year’s worth of Social Security credits for a year’s worth of such work, up to a certain limit. (Such a measure would be gender neutral and would also help some men, but it would primarily affect women.) The argument in favor of such a reform is that it would make Social Security more responsive to modern realities and support women who may have low benefits. It could be expensive, however. For example, providing annual earnings credits for five years of child-rearing could increase the long-term funding gap by 8 percent. Plus, offering credits for caregiving may be hard to administer. The cost of such credits could be adjusted up or down, based on their size and the number allowed. Another proposal would credit each spouse in a two-earner couple with 50 percent of their combined earnings during their marriage. This approach, known as earnings sharing, attempts to equalize the treatment of two-earner couples with those of more traditional, single-earner couples. (Under a growing number of circumstances, a working wife gets no more Social Security than if she had never worked outside the home.) Earnings sharing, however, could create new problems. Benefits for many widows could be reduced, unless such a proposal were designed to prevent that, adding to its cost. Whether to Divert People’s Taxes to Private Accounts Free-market advocates have long pushed to make Social Security more of a private program, in which some of your payroll taxes go into a personal account that would rise and fall with financial markets. Supporters believe that your returns in the stock market would make up for cuts in your benefits. You would own the assets in your personal account and could pass them on to your heirs. Historically, the stock market has produced solid, positive returns when measured over long periods of time. Personal accounts could be introduced gradually, so that they would become a choice for younger workers while retirees and near-retirees wouldn’t be affected. The argument against this strategy is that it would erode the basic strength of Social Security, which is a guaranteed benefit you can count on, and replace it with the uncertainties of Wall Street and other investments. Social Security was created as social insurance that protects workers and their families when they no longer can work because of death, disability, or retirement. Private accounts have no such mission, and workers couldn’t rely on the same protections for themselves or their dependents. Whether to Create a Minimum Benefit Social Security no longer has a real minimum benefit. Even with Social Security’s progressive benefit formula, low wage earners may end up with benefits insufficient to cover basic living costs. A higher minimum benefit can be achieved through various means. For example, a minimum benefit may be set at 125 percent of the poverty line (or some other percentage), targeting workers who have worked fewer than the 35 years that go into benefit calculations. In theory, the Social Security Administration could set a higher floor for benefits or include credits for unpaid work, such as for caregiving (see the earlier section “How to Treat Women More Fairly”). Also, a minimum benefit could be indexed to wage increases, keeping the minimum benefit adequate over time. The problem is that a minimum benefit would cost money at a time when Social Security needs more of it. Further, it would weaken the relationship between contributions and benefits that has been so important to the program’s success. The total cost of a minimum benefit depends on the particulars, but by some estimates it could increase the shortfall by 2 percent to 13 percent. Whether to Give a Bonus for Longevity The oldest Americans are often the poorest. They may have little savings. Usually, they no longer work, they face significant health challenges, and if they have pensions, such income is usually eroded by inflation. Hiking their benefits through a longevity bonus is one idea for how to help them. For example, a 5 percent benefit increase could be targeted to individuals above a certain age, such as 85. Like other proposals, the longevity bonus could be phased in and fine-tuned. It would directly help a segment of older Americans who have the greatest need for adequate benefits and have little or no way to strengthen their finances. This proposal isn’t about saving money. For example, if a longevity bonus were offered 20 years after eligibility (which is age 62 for most people), it could increase the long-term Social Security shortfall by 9 percent. That’s the argument against the bonus or to limit its size.

Article / Updated 11-05-2021

Copyright © 2020 AARP. A growing number of Americans owe income tax on part of their Social Security benefits. You typically won’t owe income taxes on your benefits if they represent all of your income. But significant income from work, investments or a pension — on top of Social Security — could be an income-tax liability. In addition to the feds, some states — predominately in the Midwest — tax Social Security benefits. (The states have a hodgepodge of tax rules and exclusions for Social Security, so check with your own state tax agency or accountant to figure out whether that applies to you.) The state tax agencies go by different names, but you can find contact information for yours at the Federation of Tax Administrators. Whatever your income, however, at least 15 percent of your Social Security benefit is protected from the tax collector. No one pays income tax on more than 85 percent of his or her benefits. Importantly, single filers are treated differently than married couples filing a joint return. You can go through a few steps to get a rough idea of how taxation of benefits may affect you: 1. Get a rough idea of your provisional income, or what Social Security calls your combined income. Your provisional income is the sum of wages, interest (taxable and nontaxable), dividends, pensions, self-employment income, other taxable income, and half of your Social Security benefits, less certain deductions you may take when determining your adjusted gross income. 2. See where your provisional income level fits into the tax rules. Say you file as an individual, and your combined income is under $25,000. If so, you owe no taxes on your Social Security. If your provisional income level is between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits. If your combined income is above $34,000, you may have to pay income tax on as much as 85 percent of your Social Security benefit. For married couples, the levels are different. If a couple has provisional income of less than $32,000, you’re in the clear. If provisional income comes in between $32,000 and $44,000 on your joint return, you may owe income tax on up to 50 percent of your Social Security benefits. Couples who earn more than $44,000 may have to pay taxes on as much as 85 percent of their benefits. Married people who file separate tax returns and receive Social Security typically have to pay some tax on their benefits. This is because for people in this category, the limits are zero, meaning that up to 85 percent of Social Security benefits may be subject to the income tax. 3. Determine exactly how much of your benefit may be taxed. This can get complicated, depending on your personal situation, especially if you have to include 85 percent of your benefits as part of income for tax purposes. To do it right, you need to fill out a step-by-step worksheet, or rely on tax software or your accountant. You can find a worksheet at the IRS website. Every January, you should receive a Form SSA-1099 that tells you your total Social Security benefits for the prior year. You need this information for your federal tax return. Here’s an example: Tom and Carol are a married couple who file jointly. Tom’s Social Security benefit comes to $7,500, and Carol’s spousal benefit adds another $3,500. Tom also gets a taxable pension of $22,000 from his former job with an automaker and interest income of $500 from some certificates of deposit. Tom and Carol figure out their provisional income by adding $22,000 plus $500 plus $3,750 (half of Tom’s benefit) plus $1,750 (half of Carol’s benefit) for a total of $28,000. Tom and Carol pay no federal income tax on their Social Security benefits, because their provisional income of $28,000 comes in below the $32,000 threshold for a married couple filing jointly. But suppose they had more income. What if Tom’s pension came to $30,000? That extra $8,000 would boost the couple’s provisional income to $36,000 — well above the $32,000 threshold for married couples. In this case, Tom and Carol would owe income tax on about 18 percent of their Social Security benefits. As of this writing, U.S. citizens who live in certain countries, including Canada, Chile, Germany, Greece, Ireland, Italy, Japan, Switzerland, and the United Kingdom, don’t have to pay income tax on Social Security or are subject to low rates, no matter how big their income. This is because of tax treaties between the United States and those nations. (The list may change over time.) Paying your taxes ahead of time You may be required to send quarterly estimated payments to the IRS if you have tax liability that isn’t handled through withholding from an employer. Separately, you may request to have federal taxes withheld from your Social Security payments. You can get the IRS Form W-4V to request voluntary withholding or call the IRS at 800-829-3676 (TTY 800-829-4059). There’s also a link to the form through the Social Security Administration (SSA). If you choose to withhold federal income taxes, you can select only among certain percentages: 7 percent, 10 percent, 12 percent, or 22 percent of your monthly benefit. You should return the signed form to your local SSA office.

Article / Updated 07-01-2021

In the course of a year, the Social Security Administration (SSA) has tens of millions of direct contacts with the public, in field offices and over the phone. These contacts range from simple queries for information to emotionally charged concerns about benefits that can have a huge impact on a person’s monthly income. So, it isn’t surprising that people sometimes aren’t satisfied with the process or outcome. You have options for registering your complaint, and they vary depending on how serious your complaint is. You also can fill out a comment card to rate your experience at your local SSA office. This card, which should be available at your local SSA office, isn’t an official complaint form. It’s more like the little cards you may see at restaurants, asking what you thought of the service. You can even use this card to say something nice if you’re so inclined. Contacting the right offices If you have a more serious grievance with the SSA, you need more than a comment card or online feedback form. Here are your options: Contact your local SSA office in person or in writing. You can get the address of your local SSA office by plugging in your zip code at the Office Locator link or by calling 800‐772‐1213 (TTY 800‐325‐0778). Write to the national office of the SSA. You can write a letter to the following address, detailing your complaint: Social Security Administration Office of Public Inquiries 1100 West High Rise 6401 Security Blvd. Baltimore, MD 21235 Contact your elected representatives in Congress. You can contact your congressperson here. Check here if you need to contact your senators. For discrimination issues and unfair treatment If your complaint specifically has to do with discrimination or unfair treatment by an administrative law judge, the SSA has specific forms you can fill out. Here’s the information you need: Complaints of discrimination: If you feel you were unfairly treated on the basis of your race, color, national origin, lack of proficiency in English, religion, gender, sexual orientation, age, or disability, you may file a formal complaint with the SSA. Such complaints should be registered within 180 days of the action you’re complaining about. Mail the signed, dated discrimination complaint form, along with your written consent to let the SSA reveal your name in the course of its investigation, to the following address: Social Security Administration Civil Rights Complaint Adjudication Office P.O. Box 17788 Baltimore, MD 21235‐7788 Complaints of unfair treatment by administrative law judges: If you’re fighting the SSA over benefit decisions, the hearing before an administrative law judge is a critical moment in your appeal. The appeals system depends on such hearings being fair, and the SSA provides guidelines on how to complain if you feel that you were treated unjustly. You may express yourself verbally, but you’re better off writing down the facts and mailing them to the SSA. Your complaint should include All your basic contact information Your Social Security number The name of the administrative law judge you’re complaining about When the incident occurred Names and contact information of any witnesses Your complaint should state your concerns as precisely as possible and what you considered to be unfair. Make clear the actions and words that you object to. The SSA provides some background on complaining about an administrative law judge at the SSA website. Send your written complaint to the following address: Office of Disability Adjudication and Review Division of Quality Service 5107 Leesburg Pike, Suites 1702/1703 Falls Church, VA 22041‐3255 Don’t confuse a complaint of unfair treatment by an administrative law judge with a step in your appeal. If you want to pursue your appeal after an unfavorable finding from an administrative law judge, your next step is to request a review by the Appeals Council. Copyright © 2015 AARP

Article / Updated 03-10-2021

Copyright © 2020 AARP. All rights reserved. If you have years until retirement, you have a vital stake in the future of Social Security, and this article explores many of the reasons why. For starters, proposals to modify benefits — such as by raising the retirement age or reducing benefit levels — usually are designed with younger workers in mind. (Policymakers have traditionally felt that changing the rules for current retirees or workers who will soon join their ranks is unfair and that young people have time to plan.) Whatever you may think of the nation’s budget issues and how best to address them, it’s worth knowing that future beneficiaries would feel the brunt of proposals aimed at curbing Social Security benefits. If you’re a young person, that future beneficiary is you. But younger Americans have a stake in Social Security that goes beyond even the benefits they’ll get one day. Benefits that go to older family members — and others in the community — help all of us by fostering independence and reducing poverty. If such support were to be decreased, we would pay the price in other ways. If You’re Lucky, You’ll Be Old Someday What kind of world awaits you in old age? Who can say? But if you believe in planning, you can’t ignore sweeping trends that have eroded retirement benefits and retirement security for hardworking Americans. Private pensions have become much less common. Wages have grown little. Financial markets are volatile. Health care gets more expensive all the time. Meanwhile, gains in longevity mean you may be old for decades. The odds of reaching 100 are better than ever. Maybe envisioning old age is difficult if you’re still young. But no matter how old you are, you can probably agree with the following: You want to be secure in your later years. You want to be as independent as you can. You don’t want to worry about the necessities. You don’t want to lean on others to help pay your bills. That gives you a stake in preserving a strong Social Security program. Social Security benefits don’t just go to someone else. Someday, they’ll go to you. Your Parents Will Be Old Even Sooner Even if Social Security still seems like some far-off concern to you personally, it may already be helping support your parents. As a loving child, presumably you want your parents to have independence and dignity after a lifetime of hard work. For most middle-class families, Social Security makes that possible. Yet that’s not the whole story. By helping your parents stay independent, Social Security may offer you an advantage you don’t much think about. There’s no delicate way to put this: Do you want your folks to move in with you? Of course, some adult children would be happy for that. Intergenerational families are a growing phenomenon, particularly during tough economic times. It’s safe to say, though, that ideally such households should be created through voluntary choice, not as a last resort in desperate circumstances. Besides, even if you’re game for mom and dad moving in, who’s to say they want that? Older Americans typically prefer to have their own space, as long as they can afford it and have the physical ability to manage on their own. That’s the arrangement most adults — parents and grown kids — want. Social Security plays a critical role in preserving your parents’ independence — and yours as well. You’re Paying into the System Now One easy-to-grasp reason young workers have a stake in Social Security is that they’re helping to pay for it. Social Security payroll tax contributions come straight out of your paycheck and add up to many thousands of dollars over the years. Many people, particularly those of moderate income, pay more money in Social Security taxes than they do in income taxes. The basic Social Security tax rate is 6.2 percent of earnings up to a certain limit ($137,700 in 2020), each paid by the employee and the employer, for a total of 12.4 percent. The payroll tax means that young workers pay a lot of money into the system in the course of their lifetimes. In return, they earn Social Security benefits for themselves and their dependents — benefits they may need long before retirement if misfortune strikes. Young workers have a personal financial stake — perhaps larger than they recognize — in keeping Social Security strong for the day they receive benefits. You Benefit When Social Security Keeps People Out of Poverty Social Security keeps more people out of poverty than food stamps, earned income tax credits for the poor, and unemployment insurance combined. As a result, all of society benefits. Before Social Security, needy older Americans could end up in the county poorhouse, where they lived out their final days in misery. Social Security has become the nation’s most successful anti-poverty program, keeping about 22 million older Americans out of poverty, and perhaps significantly more, according to some measures. That includes more than 1 million children and more than one-third of older Americans. Helping people stay self-sufficient isn’t just humane. It also solves problems that would have to be dealt with one way or another and at potentially significant costs to the public. If Social Security were to play a smaller role in easing hardship, demand would soar for other services provided by the federal government and the states, creating pressure to raise taxes. If you’re a middle-class worker, Social Security’s role in combating poverty may not be the first thing you think about when it comes to the program. But you benefit as a result. You May Need Benefits Sooner Than You Think Even when you’re young, you may be covered by Social Security for important benefits. These protections may apply not only to you but also to your immediate family. It’s natural to think of Social Security as a retirement program. But millions of people benefit from protections that were created with the young in mind. For example, Social Security may provide survivor benefits to young families if a breadwinner dies. These benefits may last until the worker’s child reaches the age of 18. A widow or widower who is caring for the child may get benefits until the child reaches age 16. Similarly, you can build up disability benefits that you also may need at a young age. Such benefits also may go to dependent family members. The Social Security Administration (SSA) recognizes that cases of death and disability can create extreme need when you and your family are still young. As a result, the eligibility requirements are designed with that in mind. You can become eligible for certain benefits after a relatively brief period of covered work, compared to the rules for retirement. If you’re still in your 20s, you can build up some eligibility for survivor and disability protections with as little as six credits — typically, 18 months of work. (Requirements vary based on age and tenure in covered work, but the idea is to give some protection to workers before they’re old.) By contrast, you have to work about ten years to build up the earnings credits required for retirement benefits. Bottom line: Social Security is set up to protect people of all ages. Social Security Ensures That Time Doesn’t Eat Away at Your Benefit I bet you’ve heard your parents or grandparents reminisce about the “good old days” when bread cost a quarter and candy cost a penny. Maybe they even told you how proud they were to get that first job that paid a grand total of $10,000 a year. (I sure was.) Just as the prices and wages our parents experienced 20, 30, or 40 years ago seem quaint today, without certain adjustments that are built into the Social Security program, our benefits would seem like a pittance to us 20, 30, or 40 years in the future. Social Security shields benefits from economic erosion in two primary ways: The benefit formula makes sure that payments increase from one generation to the next with growth in average wages. It achieves this goal through indexing and other adjustments that can add hundreds of dollars a month to future benefit amounts. Social Security is designed to keep up with rising prices (a feature that isn’t part of most pension plans). This protection can make an enormous difference in your future standard of living, because inflation eats away at the dollar as the years pass. For example, if you’re 35 years old, a 3 percent rate of inflation would mean that a dollar you have today will be worth only about 40 cents when you’re 65. To shield your benefit from inflation, Social Security applies a cost-of-living adjustment (COLA) to benefits, so that a dollar in benefits today will still be worth a dollar 10, 15, or 35 years from now. Social Security benefits are supposed to be meaningful, not quaint relics of the past. The built-in wage and inflation protections mean that the benefits you earn while you’re younger will retain real purchasing power when you need them. Social Security Benefits Are One Thing You Can Hang Your Hat On Retiring with financial security is increasingly difficult. You probably don’t have a pension. If you own a home, it may have dropped in value, possibly below what you paid for it. Health care costs continue to rise, as do other necessities of life, including energy costs and food. Meanwhile, the gift of longevity means that old age can last a very long time. How will you pay for all those years? Hopefully, you have various resources to draw on, and you keep your living expenses in line with income. Hopefully, these resources can endure, rewarding you for years of hard work and thinking ahead. But for many older people, it’s a struggle. Account balances decline. Income fails to keep up with inflation. And you can’t control these things. Social Security’s guaranteed income stands out as the one thing you can count on — a reliable monthly foundation of income that will last the rest of your life. And Social Security’s inflation protection helps preserve its value no matter how long you live. Unfortunately, the trends undermining retirement security are well established, and there’s little reason to believe that they’ll vanish anytime soon. Young workers need something they can count on to help them achieve financial security when they’re old. Social Security remains the bedrock. The System Works Social Security isn’t perfect. But by and large, it makes the right benefit determinations. Its administrative costs are low. Payments go out on time. You know what you’ve got coming, and you get it. This predictability is part of the value of Social Security. I’m not saying that young people today know precisely what they’ll get in the future or that Social Security will never be modified. But the enduring outlines of Social Security are apparent: It’s an efficient system of guaranteed benefits that can last a lifetime, with some inflation protection. It’s designed to replace more income for modest earners, but some income for all who pay in. It will remain a foundation for retirement security that people can count on every month for as long as they live. Social Security isn’t based on theories of human behavior, such as the idea that you’ll save more or that you’ll save wisely, or expectations of how Wall Street will perform in the future. It isn’t an experiment. Social Security works. The Alternatives Are Worse You can bolster your retirement security in many ways. It was never Social Security’s intended role to do the job alone. Saving over a lifetime can make a tremendous difference. Postponing retirement and extending your work life is a powerful way to nurture your nest egg for the long haul. Investing with care (and patience) can help savings grow significantly over time. If you have many thousands of dollars, you may consider buying an annuity to guarantee more monthly income when you’re older. None of these strategies, however, can match the broad, guaranteed protections of Social Security. For most people, savings rates are too low to protect them in a protracted old age. About a third of workplaces offer no retirement savings programs at all. When programs such as 401(k) plans are available, many workers fail to take full advantage of them, despite tax incentives and payroll deductions to encourage enrollment. Financial investments — important as they may be — come with risk. When markets collapse, they pull down retirement assets with them. If that’s your fate, it can take years to recover. Working longer can be enormously helpful in boosting economic security later in life. But research has shown that many older people retire sooner than they had planned on. Various reasons account for this, including layoffs in a tough labor market, personal health problems that make it difficult to keep up the daily grind, and the need to serve as a caregiver for an ailing spouse. An assortment of strategies can combine to strengthen economic security in retirement. Hopefully, some of them are part of your own family plan. For most people, however, Social Security remains the linchpin of well-being in retirement. Life Is Risky When you’re young, the fact that life is risky may be hard to grasp, especially if you’ve been spared tragedy. But that’s one of the reasons Social Security was created — as a form of insurance to help ease some of the bad things that can happen in life. Out of all the young men entering the labor force, 35 percent will become disabled or die before reaching retirement age, according to an analysis by the SSA. Among young women, the figure is 30 percent. And the chances of becoming disabled are a lot higher than the chances of dying, for both men and women. Bottom line: Devastating events happen, perhaps more frequently than you realize, especially when you consider a period of many years. And when bad things happen, the tragedy may affect not only the victim, but the victim’s entire family, whose livelihood may also be put in jeopardy. The protections that Social Security offers for survivors and disabled breadwinners can be a lifeline for families of all ages. They help households stay afloat financially at a time of grave crisis, providing the foundation they need to rebuild their economic plans for the long haul. They’re an important reason that young people have a stake in a strong program of Social Security.

Article / Updated 04-26-2017

Copyright © 2015 AARP A break‐even analysis compares what you get in your lifetime if you pick different dates to collect Social Security. It’s a way to estimate your total payoff from retiring at an earlier date (with reduced monthly payments) and retiring at a later date (with higher monthly payments). In general, if you die before reaching the break‐even age, and you started collecting benefits at the earlier date, you come out ahead. If you live beyond your break‐even age, and you started benefits at the later date, you also come out ahead, because those bigger payments add up over time. Where you lose out is if you die before reaching the break‐even age (and you started collecting larger benefits at the later date) or if you die after your break‐even age (and you started smaller benefits at the earlier date). You should be aware of the break‐even approach, because it’s a common tool recommended by financial planners, and it can provide perspective. But it’s just one consideration. The more you care about how your benefits add up over a lifetime, the greater weight you may give a break‐even calculation. The more you care about ending up with the biggest monthly benefit, the greater weight you may give to delaying your claim for Social Security. Your break‐even age will vary based on your earnings record and date of birth, but estimating it isn’t too difficult. Here’s how to compare how you’ll come out over your lifetime if you start benefits at age 62 versus your full retirement age: Determine your full retirement age. For example, say your full retirement age is 66. Determine your full retirement benefit at that retirement age by going to the SSA’s Retirement Estimator. For example, say your full retirement benefit at 66 is $1,500 per month. (The estimator assumes you keep working until age 66.) Determine your benefit at 62 by going to the SSA’s Retirement Estimator. In this example, if you claim benefits at 62, your monthly payment is $1,125. Figure out how much you would take home in the 48 months between age 62 and your full retirement age (66) if you start collecting at age62. In this example, you’re taking home $1,125 per month, and you’re doing that for 48 months, so $1,125 48 = $54,000. Now figure out how many months you would have to survive beyond age 66 in order to break even. In this example, the difference in monthly payments taken at age 62 ($1,125 per month) and 66 ($1,500 per month) is $375. So, divide the amount from Step 4 ($54,000, in this example) by the difference in monthly payments ($375, in this example), and you get the number of months you’d have to survive beyond age 66 in order to break even (inthis case, 144 months, or 12 years). So, in this example, if you live past age 78, you come out ahead by starting your benefits at the full retirement age of 66. If doing all that math doesn’t appeal to you, and if you were born between 1943 and 1954, here are some general guidelines: If you’re comparing retirement at 62 with full retirement at 66, your break‐even age is typically around 77 or 78. In other words, if you die earlier, you could end up with more money by claiming early retirement benefits. If you live longer, you could be better off taking your benefits at 66. If you’re comparing full retirement at 66 with delayed retirement at 70, your break‐even age is typically several months after your 82nd birthday. In other words, if you die before 82 or so, you could end up with more money by beginning benefits at 66. If you live past 82, you could be better off delaying your retirement benefits until you turn 70. These numbers are only estimates and do not include cost‐of‐living hikes, which could make the break‐even age come earlier. But they can add perspective to your claims decision. What’s most important is for you to consider how long you may live and how Social Security income will fit into the picture.

Article / Updated 03-26-2016

When you go back to work after you retired early and already started collecting Social Security, you could end up with reduced benefits. It all depends on whether you've reached your full retirement age. Understanding the Retired Earnings Test (RET) basics If you decide to go back to work before full retirement age, but have already started collecting Social Security, your benefits will be temporarily reduced by the Retirement Earnings Test (RET). The designers of Social Security made this test a requirement because they believed people who went back to back work should not collect full benefits. Congress changed this rule in 2000. Today only people who retire before their full retirement age must pass this test. For the purposes of the RET test, only wages that you earn by working outside the home or on a part-time basis from home count as income. You don't have to include any government or military benefits, investment earnings, interest, pensions, annuities, or capital gains when calculating income for a RET test. Once you reach full retirement age, you can work as much as you like without impacting your Social Security benefits. There are no earning limitations once you reach full retirement age. In changing the rules to allow you to regain your benefits lost because of the RET, Congress took the position in 2000 that Social Security is something that you earn by years of work and that these benefits should not be withheld from people who choose to go back to work for whatever reason once they reach their full retirement age. Prior to this change in rules in 2000, 960,000 Social Security beneficiaries were working and had their benefits reduced by the RET. More than 800,000 of them had already reached their full retirement age. They lost a total of $4.1 billion in benefits because of RET rules. Reviewing the rules If you go back to work after you start collecting Social Security but before you reach full retirement age, your Social Security benefits will be reduced under two levels of RET rules: People between ages 62 and the year they reach full retirement age will have $1 of benefits withheld by Social Security for every $2 earned in excess of their allowable earnings threshold. The allowable earnings threshold was $12,480 in 2006. This allowable earnings threshold is adjusted each year by Social Security based on a formula managed by Social Security called the national wage index. The new threshold information is released in the month of October, prior to the year it will be in force. During the year you reach your full retirement, you will only have $1 of Social Security benefits withheld for every $3 earned above the allowable earnings threshold. The allowable earnings threshold was $33,240 for 2006 and will be adjusted each year by Social Security's national wage index.