1. “Long-term deficit? We can hardly afford our bills today.”
About a third of workers in their 50s expect Social Security benefits to
be their primary source of income in retirement, according to the
Transamerica Center for Retirement Studies. That reliance gives
pre-retirees reason to worry about the future of the program. The Social
Security Administration itself has said that unless something is done
to reform the system, it will have to reduce benefit payments to
retirees within the next few decades.
Less talked about, perhaps, is the concern that the program is having a
hard time paying its bills today. In 2010, the Social Security
Administration began collecting less revenue in taxes than it needs to
cover benefit payments, forcing the agency to tap its $2.7 trillion
trust fund sooner than some had expected. It was the first time since
1983 that expenditures had exceeded noninterest income, and the shortage
is expected to continue. “It’s almost like a family running huge
deficits throughout their budget,” says Eugene Steuerle, an economist
with the Urban Institute, a nonpartisan think tank in Washington, D.C.
A Social Security spokeswoman points out that interest income from the
Treasury bonds held in the trust fund will allow it to keep growing
until 2020—even if the agency has to siphon off some money to offset
shortages in tax revenue. The fund won’t be exhausted until 2033, around
the time Gen Xers are expected to begin retiring. But that is already a
few years earlier than previous projections. After that, the agency
says, tax income under the current system will only cover about
three-fourths of benefit payments through 2087.
2. “Disabled? A benefit cut is coming your way soon.”
The number of workers collecting disability benefits through Social
Security has spiked in recent years, hitting 8.9 million in April, up
50% from 5.9 million in 2003, according to agency data. Some of that
change can be attributed to demographic changes—as more women have
entered the workforce over the past several decades, the number of
people qualifying and collecting disability benefits overall has grown.
As more baby boomers age, the population of people who might qualify for
disability benefits is growing, economists say. And the expanded
eligibility for people with psychiatric disorders has contributed to an
increase in the number of younger people collecting benefits—a
population that is also likely to stay in the system for a prolonged
period of time, says David Stapleton, director for the Center for
Studying Disability Policy at nonpartisan consulting firm Mathematica
Policy Research. Other drivers include the slower economy: the number of
people applying for and receiving disability benefits grew during the
recession after some workers saw their jobs disappear or found that they
qualified for fewer jobs after becoming disabled, says Stapleton. Plus,
he says, some states are tightening eligibility for workers’
compensation and encouraging people to move onto the Social Security
disability program, which is federally funded, to lower state costs for
Medicaid and welfare programs.
It’s those added factors that are draining the Social Security Trust
Fund for disability insurance at a faster pace than expected, he says.
The trust fund could be depleted by 2016, according to agency estimates,
and if Congress fails to act, people collecting disability payments
will face a 20% cut to benefits, according to agency projections. “We’re
getting to a point where they’re running out of money,” says Mary
Johnson, a Social Security and Medicare policy analyst with the Senior
Citizens League.
Some reform proposals call for limiting the cost of living adjustments
issued to people receiving the benefits or for raising the maximum
income that can be taxed to supplement the trust fund. Lawmakers could
also decide to tighten eligibility, reduce benefits for some groups or
tap the retirement fund to supplement disability payments, but that last
option would erode the retirement trust fund sooner than expected, says
Johnson. One option for longer term reform is to develop a program that
helps people continue to work instead of claiming benefits after they
become disabled, says Stapleton. The Social Security Administration says
it projects that the number of disability beneficiaries will continue
to grow, but only at the rate of increase in workers.
3. “This used to be a much better deal.”
Today’s workers—boomers, Gens X, and Gen Y—frequently carp about Social
Security, but it isn’t all sour grapes or skepticism about paying into a
system with an uncertain future. Employees today pay more in Social
Security taxes than previous generations did. They’re also likely to get
smaller benefits relative to the taxes they paid in when it is their
turn to retire.
Over the years, as the Social Security Administration has come to grips
with the cost of its benefit program and the ranks of eligible
beneficiaries has swollen, taxes to fund the program have gone up and
up, a trend that experts say is likely to continue over the coming
years. Workers now pay 6.2% in payroll taxes (temporarily reduced to
4.2% in 2011 and 2012)—nearly double the 3.6% tax rate workers paid in
1965. Over the same time period, the maximum earnings eligible for
taxation have also increased from $4,800 (equivalent to about $35,400 in
2013 dollars) to $113,700 in 2013.
For example, a single man who retired in 1980 at age 65 after earning an
average wage of $44,600 (in 2012 dollars) would have paid about $98,000
in Social Security taxes, and probably received $207,000 in lifetime
benefits, according to a study by the Urban Institute, a nonpartisan
policy think tank in Washington, D.C. By contrast, a single man making
the same average wage today and retiring in 2030 will likely pay
$404,000 in lifetime taxes but receive just $339,000 in lifetime
benefits—about 16% less than he paid in. “People who were first in the
system got a great rate of return,” says Alan Gustman, an economics
professor at Dartmouth College. “It’s the younger generation that is
going to be in the most difficult position.” The Social Security
Administration said in a statement that Social Security taxes have
increased because the number of people collecting benefits is growing at
a faster pace than the number of people working and paying taxes. The
imbalance is also partly due to the fact that the earliest beneficiaries
only paid taxes in the later stages of their careers.
4. “Want a bigger check? Go back to work.”
Most people within 10 years of age 62, the earliest eligibility age for
retirement benefits, have already started doing the Social Security math
problem: How much do I get if I wait one year to take payments? How
much if I wait two years? To get the biggest bump in benefits, workers
have to delay their benefits beyond full retirement age—around 66 for
people born before 1957, closer to 67 for people born after. (To find
your exact date, see Social Security’s website) For every additional
year you wait, you’ll get an increase in payments of up to 8% a year
until you hit age 70. (Find your yearly rate of increase here.)
A man who could receive a monthly benefit of $1,000 at his full
retirement age of 66 would collect a smaller check of $750 a month if he
started collecting benefits at age 62, but could get $1,320 a month if
he waited until age 70 -- a 32% boost.
If you’ve already started collecting benefits and you’re under full
retirement age, it isn’t too late to get a raise. One strategy: Go back
to work. If you earn more than $15,120 annually through your employment,
the Social Security Administration will dock $1 in benefits for every
$2 you earn. But once you reach full retirement age, your benefits will
be recalculated to account for the money you didn’t get while working.
So, for example, someone who took their benefits at 62—at a 25%
reduction compared with full benefits—but went back to work from ages 63
to 66 and earned enough to zero out his entire Social Security check
could end up collecting close to full benefits at age 66.
5. “You can be unemployed and retired.”
A growing number of people in their 60s are collecting unemployment and
Social Security benefits at the same time. Since 2002, 19 states have
changed the rules to allow people to qualify for more unemployment
benefits while they receive Social Security, according to the National
Employment Law Project, which has advocated on behalf of allowing
seniors to claim both. It’s perfectly legal; you just have to report the
income to both agencies.
There is no clear data on how many people are drawing both. About 11% of
people who collected unemployment benefits in 2012 were 60 or older,
according to the Department of Labor; the minimum age to collect Social
Security retirement benefits is age 62. For those who qualify, the
option has obvious appeal for older Americans struggling to find work in
today’s weak job market. “They’re unemployed and they’re still looking
for work,” says George Wentworth, an attorney with the National
Employment Law Project, adding that many of these seniors would be
willing to give up their Social Security benefits if they landed a job.
Receiving unemployment benefits doesn’t affect your Social Security
payments, but the reverse isn't always true: In some states, collecting
Social Security can reduce your unemployment checks. In Illinois,
Louisiana, South Dakota and Minnesota, your unemployment benefits can be
reduced by half of your monthly Social Security benefit.
6. “Your Social Security number is no state secret.”
Don’t carry your Social Security card in your wallet. Don’t give your
number over the phone. Don’t use it as a password. For all the
precautions workers are told to take to protect that nine-digit number, a
Social Security number is still surprisingly vulnerable. So far this
year, more than 6.4 million names, along with Social Security numbers,
driver’s license numbers and other pieces of sensitive personal
information have been exposed to potential theft as a result of more
than 301 data breaches at employers, government agencies and elsewhere,
according to the Identity Theft Resource Center, a nonprofit that helps
victims of identity theft.
But a Social Security number need not even be stolen to be compromised. A
2009 study from Carnegie Mellon University found that it is
possible—and not too difficult—to guess a Social Security number using
details easily gleaned from a Facebook profile, such as date of birth
and hometown. Researchers were able to accurately guess the first five
digits of 44% of Social Security numbers issued after 1988 on the first
try, just by using the date and the state the number was issued in; they
were able to guess the complete numbers almost 9% of the time. The
authors used a list of known Social Security numbers from the Social
Security Death Master File, an index of deaths that have been reported
to the agency, to find patterns on how the last four digits are
assigned—the first five digits are based on the state the number was
issued in—and they found that they are largely assigned in order, based
on when the number was issued.
In 2011, the Social Security Administration implemented a more
randomized process for assigning Social Security numbers, making more
combinations available in every state. Anyone with a number issued
before then might want to guard their birth date and place of birth as
carefully as they do their Social Security number -- or at least tighten
their Facebook privacy settings.
7. “If you make too much, we’ll tax your benefits.”
Your
Social Security benefits come from paying taxes while you were working,
so surely they can’t be taxed, right? Wrong. You may be taxed on your
Social Security benefits if you have substantial taxable income from
other sources, such as dividends, self-employment, investment interest
and pensions, or IRA and 401(k) distributions. And studies find many
Americans aren’t aware of the fact: Some 42% of pre-retirees surveyed by
the Financial Literacy Center didn't know that benefits could be taxed
if their income in retirement exceeded a certain amount.
The
rule is that if your combined income—a measure that includes other
sources of income and half of your Social Security benefits—exceeds
$25,000 for an individual or $32,000 for a married couple filing a joint
return, you may be taxed on up to 85% of your benefits. People who find
themselves in this group can make quarterly estimated payments or
choose to have federal taxes withheld from their benefits. The Social
Security Administration began taxing benefits in 1983 as part of a law
intended to increase income for the Social Security program and
Medicare.
8. “Your cost-of-living adjustments come up short.”
Every year, Social Security recipients get a cost-of-living adjustment, a
little bump based on the current rate of inflation and designed to
cover the rising cost of everything from toothpaste to airline tickets.
But some critics say the current measurement of inflation doesn’t
reflect the higher costs that seniors truly face. For example, many
people in retirement may spend a large share of their budgets on health
care, and the adjustments might not cover the steep rise in housing
costs that can occur when seniors need to move into assisted housing,
says Catherine Collinson, president of the Transamerica Center for
Retirement Studies. “In many parts of the country, a monthly Social
Security benefit isn't enough to cover basic living expenses,” she says.
The pricing pressure means some retirees could find themselves
struggling to cover essentials like gas, medicine and housing, says
Collinson, meaning they will have to cut spending in other areas. For
pre-retirees, it means ramping up your savings today so that you can
struggle less in your golden years, she adds. The Social Security
Administration says it has been using the Consumer Price Index to
measure inflation for the cost-of-living adjustments since legislation
instituting automatic cost-of-living increases was enacted in 1972, and
changing the benchmark would take an act of Congress.
9. “Good luck reaching us.”
Nearly 182,000 people stop by one of the Social Security
Administration’s local offices daily, and more than 445,000 people a day
call the agency for help filing claims, to update their information and
other guidance, according to a 2012 report by the Office of the
Inspector General. But the administration’s shrinking budget (the
agency’s budget for fiscal year 2013 is $11 billion, nearly $1 billion
less than it was in 2010) and smaller staff (the agency lost about
10,000 employees since the start of 2011) are making it harder for
employees to handle the growing workload. The average call wait time
grew to nearly 5 minutes last year from three minutes in 2011, the
report found. And the agency merged 20 field offices last year. The
obstacles could grow as more employees retire—the administration
estimates 45% of its employees will be able to retire by 2020—leaving
fewer experienced workers on staff, the report found.
The Social Security Administration is trying to improve its customer
service by increasing the range of services offered online and launched a
new mobile-friendly site for smartphone users. Last year, the agency
rolled out an online Spanish application and improved the online appeals
application. It also made it possible for people applying for
disability benefits to electronically submit medical information, which
could speed up the claims process. “Given our significantly reduced
funding over the last three years, we have had to find innovative ways
to meet the needs of the American people,” says a Social Security
spokeswoman. Collinson says people should take advantage of online
services and set up appointments with their local offices to be sure
someone can help them when they go.
10. “We punish dual-earning households.”
The Social Security program, in a way, rewards marriage by providing
spouses with retirement and survivor benefits to husbands and wives,
even if one spouse never worked. But those perks all but disappear for
couples where both spouses are working and earning roughly the same
amount, says Alan Gustman, an economics professor at Dartmouth College
It comes down to the way spousal benefits are awarded. If a person at
full retirement age has never worked or paid Social Security taxes but
is married to someone who did, that person is still entitled to receive
benefits of up to 50% of the payments being awarded to their spouse and
100% if their spouse passes away. If both spouses worked but one person
earned much more, the benefits of the lower-earning spouse would be
topped off to equal at least half of the payments being given to the
higher earning spouse. (Say the husband earned benefits equal to
$20,000: The wife is entitled to receive $10,000 in benefits even if she
would only receive $5,000 based on her own work record.)
But in households where both spouses
earn roughly the same income, each person only receives the benefits
they earned through their own work history and the taxes they
paid—getting no boost from their spouses, says Gustman. “Two-earner
households are at a big disadvantage,” he says.
To be sure, households where both spouses worked could receive more in
Social Security benefits overall in retirement, even if they did pay
more in taxes. (Picture two people collecting $20,000 a year as opposed
to a home where one spouse gets $20,000 and the other gets $10,000). And
fewer women overall are expected to collect spousal benefits, as more
women enter the workforce and earn as much as or more than their
partners, says Gustman.
But for now, it appears high-earning couples are getting more out of
Social Security spousal and survivor benefits, says Gustman, who
co-wrote a report with Thomas Steinmeier and Nahid Tabatabai funded by
the Social Security Administration through the Michigan Retirement
Research Center that found women in higher income households are less
likely to work when compared with lower income households, where both
spouses are more likely to work. The Social Security Administration says
it projects that the number of women collecting benefits based on their
work records will double to 36.4 million by the end of 2037, from 18.2
million at the end of 2012. The number of women collecting spousal
benefits alone will decline slightly over that same time period to 2.1
million from 2.2 million.
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