Social Security is about more than retirement
As of the first month of 2022, over 65 million people, about one in every six of us, was collecting a benefit.
But it’s not just retirees. Twenty percent of those 65 million Social Security recipients are earning a disability benefit or are receiving a benefit because they are the young survivor of a deceased beneficiary.
Simply, Social Security is also life and disability insurance.
And just how much is that worth? For a deceased, young worker, with a spouse and two small children, paid benefit amounts would be roughly equal to a life insurance policy worth $800,000. 1
On average, a Social Security retirement benefit really isn’t all that much
That’s the national average monthly Social Security payout amount. (If you don't want to get out your calculator, that's $19,368 on average per year - while the median disabled worker or surviving spouse receive even less.)
Social Security replaces about 37% of an average worker's income, but for higher earners, and in the face of nuclear inflation, that number is actually significantly less. 1
2022’s cost-of-living adjustment is the highest in 40 years
Each October, the Social Security Administration releases a list of changes to the program for the following year. While the cost-of-living (COLA) adjustment for 2021 was just 1.3%, for 2022, it’s 5.9%, making it the largest increase since 1982. And the 2023 COLA could be one of the biggest ever, depending on how inflation data plays out for the rest of the year.
Full retirement age just keeps getting further away
The earliest age at which you can begin claiming Social Security retirement benefits is 62. But if you claim (or claimed) benefits at 62, your payment amount will (or did) experience a substantial reduction (compared to waiting longer to file).
Currently, the legal full retirement age (FRA) goes up two months each year and is supposed to cap at age 67. That means that anyone born in 1960, or later, has an FRA of 67.
Each year you delay claiming Social Security benefits, your payment goes up 8%, until, that is, age 70, at which time your benefit amount will stop growing.
Even though a vast majority of people begin collecting benefits earlier than age 70, people who have saved well, and don’t need Social Security to make ends meet, often assume that they’ll wait until their benefits have crested to file.
But that’s not necessarily the best plan.
That’s because, when it comes to Social Security, it’s impossible to know how future changes to the program may impact each individual’s payout amount. There are numerous variables, and everyone’s situation is unique, but we sometimes advise our clients who have saved exceptionally well to claim their benefits early, rather than wait until age 70.
You can change your mind, if…
I’ve met people who claimed Social Security early, say, at age 62, came to regret it, and wanted to know if there was anything they could do.
Yes and no.
You have 12 months after you start receiving benefits to change your mind and withdraw your application. The other caveat is, that if you do change your mind within one year, you must pay back all the money you’ve received.
Survivor benefits kick-in if...
In the unfortunate event that you lose your spouse, with a few exceptions, say, they passed away in an accident or in the line of duty, to receive survivor benefits, you will usually have to have been married for at least nine months.
You’ve almost certainly heard warnings that the very survival of Social Security in its present form is in doubt. There are numerous reasons for this, but a big one is that the system is stressed because, first, people are living longer, and second, younger generations are having fewer children (meaning there are too few people paying into the system to support the tens of millions of retirees).
As always, it’s best to plan and prepare. Sudden, drastic changes to the program, such as the government applying taxes to 100% of benefits, or even “means testing” (wealthier recipients having their benefit amounts slashed or eliminated) are certainly possible.
As with all things related to your finances and retirement, the best course of action is to work with a fiduciary professional who can take your entire financial situation into consideration, and then help you make the best decisions for you.