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Why Social Security Is So Hard to Get Right

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With millions of Americans having put little or nothing aside for their own retirement, Social Security will continue to play a key role in keeping them financially solvent during their retirement years. But figuring out how to make the most of the Social Security benefits you're entitled to is hard, because you have so many choices that can have a life-changing impact on your finances not just for as long as you live but also for the loved ones who depend on you.

To make sure you get as much from Social Security as you deserve, it's essential to understand the ramifications of the choices you get to make. Later on in this article, you'll get some strategies to help you make a smart decision with your Social Security benefits. First, though, let's take a look at just how important it is that you get it right.

Social Security: From supplement to dependence
The original idea behind the Social Security program was to provide supplemental income, not primary income, for retirees. Before the program was enacted, people got by with a combination of savings and the retirement income that some received from employer pensions.

Yet now, Social Security has become a huge part of financial security for retirees. According to a recent study from the Economic Policy Institute, for around 60% of those who are 65 or older, Social Security makes up the majority of their income. For poor and lower-middle-class people in retirement, Social Security provides an average of more than 80% of their overall income, while even among middle- and upper-middle-class retirees, the figures average out to roughly half of all income. Only among the richest fifth of the retiree population do pensions and investment income dwarf Social Security as a way of meeting living expenses. Moreover, many upper-class people of retirement age are still working, adding to outside earnings.

The complexities of Social Security
Social Security seems simple on its face. The major decision you have to make is when to start taking benefits. Take them at standard retirement age, which is currently 66, and get a certain monthly amount. Choose age 62 instead, and you'll get 25% less per month. Wait until age 70, and you'll get 32% more.

But as simple as that sounds, not knowing how long you'll live makes it hard to choose the best option. Waiting until age 70 gets you the biggest monthly benefit, but missing out on four to eight years of payments means that those who wait play catch-up for a decade or more in most cases.

Moreover, Social Security decisions affect more than just you. If you're married, then your spouse's potential benefits are affected by your decision. The same is true for ex-spouses if you were married for 10 years or more and the ex-spouse never remarried. Moreover, if both members of a couple have had careers, the interplay between your own benefits and spousal benefits based on the other spouse's earnings history is hard to analyze.

Trying to duplicate Social Security
MetLife
(NYSE: MET  ) , Genworth Financial (NYSE: GNW  ) , and a host of other insurance companies have realized how big the monthly income gap is in retirement and have sought to take advantage of it by offering more immediate-annuity products. These annuities offer monthly payments for life just like Social Security, and they're a useful tool in fighting against the risk of outliving your savings.

Even businesses are jumping on board. Just last year, both Verizon (NYSE: VZ  ) and General Motors (NYSE: GM  ) tapped these products to cover their pension obligations to tens of thousands of workers. By outsourcing the investment risk to Prudential (NYSE: PRU  ) , both GM and Verizon were able to define the full extent of their obligations rather than having open-ended pension liability for decades to come. You can do the same with your own investment risk by buying an immediate annuity, although low interest rates have reduced the amount of income you'll be able to generate from them.

Be smart
When to take Social Security may be the last huge financial decision you'll ever make. Rather than just making your best guess, take the time to understand all the ins and outs and analyze when you'll be best off getting benefits. The right answer will make your retirement a lot more comfortable.

For more details on strategies you can use on Social Security, be sure to read this article.

Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance. You can follow him on Twitter @DanCaplinger.

Learn more about GM's turnaround in our latest research report on the company, which details the key provisions and whether they make GM a buy right now. Don't wait, though; click here now to get started.


Read/Post Comments (56) | Recommend This Article (46)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 28, 2013, at 9:52 AM, rayzur9 wrote:

    The government has been raiding the coffers for so many years its become a pork-trade-slushfund for most Democrat and libs personal agendas.

    I do not rely on there being a single dollar of SS available for retirement, the current status of taxpayer subsidizing illegal immigrants and welfare abuse will break eventually. Once Americans get tired of being forced under the gun to pay for this treachery of a government and its overwhelmingly traitorous acts of legislature, there are going to be some serious ramifications.

    I cant believe the US has become what it is..

    I cant pay for other people anymore..

    I cant pay taxes anymore.

  • Report this Comment On January 28, 2013, at 12:51 PM, foolishlycuriose wrote:

    And here's something else to consider: In 1960, the Supreme Court ruled that entitlement to Social Security benefits is NOT a contractual right (Flemming v. Nestor). So it is NOT just a matter of "taking the time to understand all the ins and outs and analyze when you'll be best off getting benefits" because those supposed 'benefits' can be taken away at will by the government should it so decide. Better bet regarding retirement - plan early and follow through.

  • Report this Comment On January 28, 2013, at 5:47 PM, foreal2012 wrote:

    I have to work and pay taxes for fifty years in order to get social security benefits while generational welfare leeches get all their benefits for life starting at age 18 or 19 when they have kids out of wedlock with five different men and play the crippled chicken game all their lives

  • Report this Comment On January 28, 2013, at 5:49 PM, sheldonross wrote:

    foolishly, that is hitting the nail on the head. People have of all walks claim that they are entitled to social security because they "paid in for X years."

    The easiest way to solve social security issues would be to fold payroll taxes into the normal tax, removing the contribution limit. Then apply means testing, and only give it to people who need it. More money in, and less out.

    Problem solved. Of course that's never gonna happen because the rabble feels entitled because they paid a tax.

    Am I entitled to a tank at some point because I paid for military spending?

  • Report this Comment On January 28, 2013, at 5:49 PM, tkell31 wrote:

    What's so hard to figure out? Run the numbers and when you have the money to retire comfortably do it. Fortunately for the govt that means most people will work until they die since they dont make enough to save money to supplement social security.

  • Report this Comment On January 28, 2013, at 5:52 PM, EMSCOTT wrote:

    If you have another government pension such as in a Public Employees Retirement System, the amount you receive from that can affect the amount of the Social Security benefit you receive. If you worked in the public sector some time in the past and left your contribution in the system, you may want to consider rolling it over into an IRA well before applying for SS benefits. You can wait to draw that money down until you are 70 and a half and it will continue to earn for you if you invested well.

  • Report this Comment On January 28, 2013, at 5:56 PM, Snertie wrote:

    Kudos to the first two posts above. Right on; For decades, it's been clear that eventually, Social Security will have to be morphed into just another means-tested welfare program; You won't be able to draw from it until you've exhausted most of your own funds, and then from that point on you'll get to live in near poverty just like those who think they'll get to retire exclusively on it alone.

    And the idea of a "lock box" is pure fantasy. You have absolutely no right to any of that money. I've always assumed that I'll never get to collect the near 15% of my pay that's been put into it. If I do, then bonus for me; I'll get to take a vacation or something. For the rest of you, it's a trap.

    During the crash, the critics of privatization of Social Security would say, "Look, your retirement portfolio dropped 50%", to which I'd respond, "And what are those securities backing the funds in your Social Security 'lock box' worth?" 50% of something is better than 100% of nothing, which is what Social Security is going to be for many people.

  • Report this Comment On January 28, 2013, at 5:57 PM, neelvk wrote:

    ^rayzur9 I have to say this - W and his unfunded wars has messed up our budget. Clinton (remember him?) managed to not only balance the budget but start paying down debt. Then came the Republicans and the red ink flowed by the barrel.

    The only way out is to slash our "defense" budget - let us start by closing bases in Japan, Germany and Italy. Let the losers of WW2 start paying for their own defense!

  • Report this Comment On January 28, 2013, at 5:57 PM, azmarkg wrote:

    For a really great analyzer to find the optimum social security strategy go to www.socialsecuritychoices.com. The cost is nominal compared to the benefit of knowing you're making the correct decision.

  • Report this Comment On January 28, 2013, at 6:02 PM, agwisreal wrote:

    Do we actually "deserve" the money that current schedules of benefits say we'll get, assuming they don't change?

    I rather doubt that I paid in enough, inflation-adjusted, to cover the benefits that I and my wife will receive if we both live to our "expected" life span.

    I know that the younger generation is having a tough time making ends meet. They're the ones who will actually be paying my benefits. (The money I "contributed" went to pay earlier retirees' benefits.) Why should they pay more, just because some bureaucrat wanted to buy old folks' votes by bumping up benefits that today's young cannot afford to shoulder?

    To avoid crippling cuts to benefits for poor retirees, I'd suggest making all social security benefits count as taxable income. (Or all benefits over and above what was originally paid in, anyhow.) This will not touch the poor's benefits, and the money recaptured can be used to shore up the social security coffers.

  • Report this Comment On January 28, 2013, at 6:28 PM, greyhound44 wrote:

    Actually, it's quite simple:

    Pay MAX FICA for 35 + years; retire at age 58 3/4;

    pay no more FICA after 31 Aug 2003; No US property taxes since 2004, and no US income taxes since 2007, and run with all your assets to an offshore location; become a dual citizen; dump your IRA prior to mandatory annual W/Ds once you are 70.5

    Take MAX SS retirement bennies (reduced for age) at 62, and MC at 65.

    Dump your MC Part B; D, and F supplement when Obamamama less than Care is fully implemented on 1 Jan 2014.

    You can buy International HC insurance for less, and if/when you ever need US treatment, there will be no penalties for re-instituting the US coverage.

    I honestly don't believe anyone in the US government nor in the Obamama insurance sphere has any clue!

    ret expat (9.5 years) MD: NBME; ABIM; ABNM: ABR w/spec comp NR

  • Report this Comment On January 28, 2013, at 6:43 PM, greyhound44 wrote:

    Oh, on the simple path to real wealth, choose your parents well; save every tax advantaged dime, and lots more: never have any debt, and sell all your US real estate higher rather than lower.

    Sure served me well.

    The Congressional Research Service concluded not long ago that if the CAPS (taxable earnings base) on SS taxes were eliminated, the SS "trust fund" would be solvent for 70 years!

    A NO BRAINER!!

  • Report this Comment On January 28, 2013, at 6:51 PM, harveytheq wrote:

    Despite what many people think, there IS a Social Security trust fund, funded with U.S. Treasury bonds (check the Social Security trustees report for its current status). The problem is that people are living longer (more money going out) and the number of retirees relative to workers is increasing (less money going in). One solution (which I suggested to my congressman 10 years ago) would be to increase the normal retirement age, raise the wage base and change the annual cost-of-living increase to reflect the actual change for retirees (this is generally less than for workers). Thus, everyone would have to do with a bit less so that the program remains solvent.

  • Report this Comment On January 28, 2013, at 6:57 PM, greyhound44 wrote:

    Hola Harvey,

    Do you own bonds?

    Only a fool would rely on the US Treasury for a single US$1.00!

  • Report this Comment On January 28, 2013, at 6:58 PM, neuRx1 wrote:

    The problem with SS like all entitlements, is that despite the fact that its not actually an entitlement, (its a trust fund), people act like its an entitlement and take too literally the word trust. This country was founded on the principle that you trust in yourself to take care of yourself. Period. With SS, people falsely believe they will be cared for in their senior years and therefore fail to save adequately for retirement. Everyone can cut corners somewhere to save a little more, but they don't, falling into the trap of dependency. Government, with this much power, always ends up in tyranny.

  • Report this Comment On January 28, 2013, at 7:00 PM, 48BabyBoomer wrote:

    I'm almost 66 and had been planning to wait until age 70 to draw the maximum amount with the annual 8% increments included. Based upon every thing I have been seeing about "means testing" I have now filed for SS which begins this month. I wish I had applied back at age 62 as I believe those we've elected will decide I make too much in my retirement and have too many assets based upon a means testing formula and even though I've paid in all these years will change the rules so I'll not receive anything. This will happen so Congress does not need to make up for spending SS receipts placed in the locked box (ha, what a lie) and can continue to give away my SS taxes to those who haven't paid in. I'm really surprised those advising people to wait until 70 haven't figured out people who paid in the maximum won't get anything out when means testing is implemented.

    I don't even want to start in on premiums for Med B and D, which are already means tested and the annually increasing deductibles.

    I hate to be pessimistic, but wait until our money is devalued as a result of Fed Monetary policy and those who have saved won't be able to purchase much with it. Unfortunately the means testing formula won't have been indexed so you'll still not get anything from your tax "contributions".

  • Report this Comment On January 28, 2013, at 7:20 PM, mdpbob wrote:

    "Later on in this article, you'll get some strategies to help you make a smart decision with your Social Security benefits."

    Did I miss something? Where were the strategies for a smart decision?

  • Report this Comment On January 28, 2013, at 8:22 PM, RussellB6 wrote:

    Regarding annuities: only in a fixed annuity does the annuitizer bear the investment risk. In a variable annuity the annuitant bears the investment risk. In either case, the annuitant bears the credit risk, that being that the annuitizer might default.

  • Report this Comment On January 28, 2013, at 8:32 PM, TMFGalagan wrote:

    @mdpbob - Sorry for any confusion about strategies. The basic strategies included waiting longer to take benefits in order to boost your income; consider the impact your decision may have on both current spouse and ex-spouses; and think about replacing some Social Security by getting your own immediate annuity. They weren't signposted as well as usual.

    best,

    dan (TMF Galagan)

  • Report this Comment On January 28, 2013, at 8:32 PM, TMFGalagan wrote:

    @RussellB6 - Agreed; I'm talking about immediate annuities, where your payment for life is defined upfront.

    best,

    dan (TMF Galagan)

  • Report this Comment On January 28, 2013, at 8:38 PM, leroyp wrote:

    If you have been paying into Social Security for many years or expect to be doing so, you should vote for privitizing Social Security. Under the current system a good deal of the money paid in does not go toward your pension, but to provide assistance to those who receive funds for disability or other needs. If Social Security was privitized the Congress would have to fund these special needs from the General funds of the government. This would allow pension funds to stand on there on merits. As for the argument that funds would be subject to the whims of the stock market is absurd. A balanced approach to investments would provide much more then what the government has provided. I base this on personal experience over the last 12 years managing my own funds balanced between stock and bond funds. Congress hates to let go of this slush fund that they whenever they need to fund special needs.This puts the burden on those who pay into Social Security.

  • Report this Comment On January 28, 2013, at 9:14 PM, missbaysdaddy1 wrote:

    The original idea behind the Social Security program was to provide supplemental income, not primary income, for retirees. Before the program was enacted, people got by with a combination of savings and the retirement income that some received from employer pensions. My parents told me early on that the money that was being taken from my small pay checks would one day be worth more than I could know. I tried to save some money when I was young but something always seem to happen that would wipe my few thousand dollars out for this emergency or that. At 31 years of age I was 5 years divorced and about to get married for the second time. I had one thousand dollars in savings and one week before the wedding my car engine blew up and I needed to buy another car. Not wanting to start a new marriage in debt I bought what I thought was the best used car my one thousand dollars would buy. To say I started off my second marriage with nothing would be an understatement but I did have a good job with a future. Fast forward 35 years and we are still married and love each other more than ever. I have been retired for just under 7 years now and with my wife's help we saved 10 percent of what I made for the 28 years before I retired and together with income from our savings and the pension from the company I worked for 29 years and 3 months we stuck it out until I was full retirement age before starting to draw my SS benefits and with the price of everything going up weekly I am glad I did. Everything we own is paid for and we try to pay cash for things we need. We have 3 credits cards all with zero balances just in case something ugly comes up. My advice is save as much as you can toward retirement and plan on having enough to live on without your SS benefits that way if they get reduced you will at least have some extra money to live on when you retire. Supply and demand will take care of the rest.

  • Report this Comment On January 28, 2013, at 9:42 PM, MFfooledmetwice wrote:

    The comment about "no lockbox" was correct - congresses from Reagan on have avoided raising sufficient taxes for wars and spending by "borrowing" excess SS funds, issuing debt chits to be paid back with interest to the SS Fund - $3.7 Trillion plus interest so far. Now that we take in less than is sent out in SS pymts to retirees, those chits need to be repaid to the SS fund. GOP conservatives bitch that it is deficit spending and welfare for retirees, but in fact it is paying back loans borrowed from the fund that covered past excessive spending - and lowered our taxes. It is owed by the Fed Treasury to the people who paid into SS Insurance all their lives. So pay it back by higher taxes from those who benefited!

  • Report this Comment On January 28, 2013, at 9:54 PM, DrJCA1 wrote:

    So we all sufffer for the idiots that buy every new toy that comes out, purchase cars and houses they cannot afford, and live on credit cards for decades instead of saving and preparing for their retirement years? Just wonderful.

  • Report this Comment On January 28, 2013, at 10:11 PM, harmonyjoe wrote:

    To MFfooledmetwice... Amen Brother!

  • Report this Comment On January 28, 2013, at 10:16 PM, devoish wrote:

    Social Security: From supplement to dependence

    The original idea behind the Social Security program was to provide supplemental income, not primary income, for retirees. Before the program was enacted, people got by with a combination of savings and the retirement income that some received from employer pensions. - Dan Caplinger

    An act to provide for the general welfare by establishing a system of Federal old-age benefits, and by enabling the several States to make more adequate provision for aged persons, blind persons, dependent and crippled children, maternal and child welfare, public health, and the administration of their unemployment compensation laws; to establish a Social Security Board; to raise revenue; and for other purposes.

    Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, - Preamble of the Social Security Act, 1935

    The biggest problem with company-provided pensions was that the percentage of workers anticipating an employment-related pension from their company or their union was tiny. Indeed, in 1900 there were a total of five companies in the United States (including Dolge) offering their industrial workers company-sponsored pensions. As late as 1932, only about 15% of the laborforce had any kind of potential employment-related pension. And because the pensions were often granted or withheld at the option of the employer, most of these workers would never see a retirement pension. Indeed, only about 5% of the elderly were in fact receiving retirement pensions in 1932. - Social Security HIstory from the SSA website

    I do not think there is one iota of truth to the idea that SS retirement benefits were as "supplemental income" to other, already existing retirement income as no such income actually existed at the time in any significant fashion and such a story is a fiction of political birth compounded by retelling.

    Best wishes,

    Steven

  • Report this Comment On January 28, 2013, at 10:27 PM, DonaldS812 wrote:

    One way to ensure Social Security is there for all, get rid of taxpayer funded Congressional pensions, make them fund their own out of their paychecks, and make Social Security as large a portion of their retirement income as the rest of us.

    You may now join me on the floor laughing my butt off.

  • Report this Comment On January 28, 2013, at 11:28 PM, TOM48 wrote:

    Took mine at 62 & I am glad I did. According to my calculations I would have to live to 78 before I broke even with the total money if I waited until 65. Plus the money I got at 62 is worth more than the money I would have gotten at 65. Inflation is here even if the government says it is not. I also retired from GM, & rather than take the annuity from Prudential, I took the lump sum payout. Rearranged my investments so that the $150000 in our Roth IRAs is all invested in monthly paying dividend ETFs, MLPs & CEFs. I am able to generate more than I would have received from the annuity & since it is from a Roth, it is tax free. Plus that left me with another $150000 to put to work in my rollover IRA. Do your math. But if you want to quit working @ 62 don't be afraid to take the SS money & go. Are you willing to bet you will live another 16 years? Will the government continue making these payments? Take you money as soon as you can.

  • Report this Comment On January 29, 2013, at 12:56 AM, Teako3 wrote:

    @EMSCOTT

    Public Employees Retirement System pensions arw not the only pensions that are offset by Social Security. The first private pension I had worked very similarly. I left them after vesting, but over time as the COLA increased the Social Security benefit, the amount provided by the company shrank to nearly zero and went completely to zero when the company folded. So much for that private pension.

  • Report this Comment On January 29, 2013, at 1:05 AM, Teako3 wrote:

    @Snetie

    Apparently you must be self-employed for you to be paying the full 15.3% to Social Security and Medicare. Except you seem to also be saying that you are employed by somebody else, so only 7.65% comes out of your check. Do not mistake the ideal that your employer would give your the matching money if there was no Social Security or medicare. That is a fantasy.

    You better hope that SS doesn't turn into a mean tested program that looks too much like a welfare program. The conservatives will smell a welfare program and want to put an end to it. It's in their genes.

    The securities bought by the Social Security Trust Fund (there never has been a lock box) are a special form of Federal Treasury notes they are by law to purchase. Effectively, that means the federal government is required to borrow the surplus. The market goes down by 50% and the trust fund assets don't. The federal government is stil required to pay interest and the principal and they are paid first.

  • Report this Comment On January 29, 2013, at 1:09 AM, Teako3 wrote:

    @harveytheg

    Actually, inflation for the elderly runs higher than for other people. The is even a CPI-E index that tracks inflation for the elderly, hence the E. It tends to run about 1% higher than the straight CPI. The main reason why is that the elderly have considerably higher medical costs and the inflation of healthcare runs 2 to 4 times higher than then standard CPI. I will be retiring within the next 12 to 18 months, and I have already documented that our medical expenses have gone up faster than anything else in our budget.

  • Report this Comment On January 29, 2013, at 1:22 AM, Teako3 wrote:

    @1947BabyBoomer

    The most important factor when taking Social Security earlier or later is you and your spouse's general health and the longevity of your family. If you have poor health and/or a short lived family history, I would definitely consider taking everything early.

    My wife and I will be 65 soon. We both have very good health. My wife's family have generally lived longer than average life spans. Most of my family is long lived. Grandmothers lived to 102 and 94, Grandfathers lived to 85 and 87, my mother is still alive and active at 90. my father died young because of a Scarlet Fever induced heart defect. I fully expect that either I and/or my wife will live to 85 or more. Considering that there is some inflation protection in Social Security and an 8% benefit increase per year is really not all that bad, we will be taking SS as late as we can.

    Yes, there is a possibility we could die younger, but the odds/probability/actuarial expectation says we have a greater than 50:50 chance to maximize our benefits by waiting.

  • Report this Comment On January 29, 2013, at 1:32 AM, Teako3 wrote:

    @leroyp

    Congress has been in the Social Security plan since 1984. Only people who were members of Congress before 1984 have significant pensions and they are ever so slowly leaving this world.

    6.2% of the 7.65% for those who are not self-employed goes into Social Security. Yes, some of that covers survivor and disability insurance benefits. the remaining 1.45% goes for medicare.

    The single biggest hurdle to privatizing is who do you invest in, i.e., to pass most smell tests, you will need to invest in everything be susceptible to having "investment favorites". Remember the plan was never intended to be a pension or an investment vehicle. I was and still is an insurance program. It has also reduce the number of elderly living in poverty by over 60%.

  • Report this Comment On January 29, 2013, at 1:37 AM, Teako3 wrote:

    @DonaldS812

    FYI.

    "Under a law enacted in 1983, all members of Congress both contribute to and receive benefits from the Social Security system. Upon retirement, members receive either a combination of federal pension and Social Security benefits or Social Security alone, depending upon when their term of service started and how they configured their individual plan.

    Members elected after 1983 pay into the Federal Employees Retirement System. Members elected before 1983 participate in the older Civil Service Retirement Program. In both cases, members of Congress contribute to the plans at a slightly higher rate than ordinary federal employees.

    According to the Congressional Research Service, 413 retired Members of Congress were receiving federal pensions based fully or in part on their congressional service as of Oct. 1, 2006. Of this number, 290 had retired under CSRS and were receiving an average annual pension of $60,972. A total of 123 Members had retired with service under both CSRS and FERS or with service under FERS only. Their average annual pension was $35,952 in 2006. Members do not automatically received lifetime pensions. How much they receive and how long they receive it depends on many factors, including age, length of service (including military) and choice of plans, etc. So, while it's conceivable that a few may receive pay-outs totaling more than a million dollars by the time they die, they would be the exception, not the rule."

  • Report this Comment On January 29, 2013, at 8:42 AM, bretco wrote:

    As Lil' Abner used to say.

    "Its so confusin' its amuzin"

    Means testing will do in most MF readers,

    and we will have another welfare program.

    We will be on par with many 3rd world countries

    long before the end of the next decade or two.

  • Report this Comment On January 29, 2013, at 8:58 AM, Gideon17 wrote:

    It seems to me that the ratio of Social Security income to total income that you use to make the point that Americans are dependent on Social Security is not a meaningful ratio. Retirees are not expected to have income. Instead, they should have assets that have been generated and saved over their working lives. They then deplete these assets over their remaining lives. In other words, it is quite possible (maybe even likely) that one could have very little in the way of income and still be well prepared for retirement.

  • Report this Comment On January 29, 2013, at 10:23 AM, ETQ wrote:

    Social security was originally intended to support RETIREES who paid into the system during their work life. Then, the phonies, parasites and manipulators learned how to "game" the system.

    That's the real problem.

  • Report this Comment On January 29, 2013, at 12:34 PM, zgriner wrote:

    "The original idea behind the Social Security program was to provide supplemental income, not primary income, for retirees. . . . Yet now, Social Security has become a huge part of financial security for retirees."

    That's because the Democrats saw to it that people would not be educated about Social Security, and so would become dependent. The Democrats also expanded the program tremendously. Why should we pay over 12% of our income to the government and get very little back? SS has become another welfare program with SSI. The retirement payments are also geared so the people that pay the least, get the most.

  • Report this Comment On January 29, 2013, at 12:41 PM, mdpbob wrote:

    Thanks dan (TMF Galagan) for the reply last evening.

    I'm looking at Social Security as a supplement to retirement only. I'll have to work longer than hoped before retiring due to market setbacks over the years but hopefully by continuing to save and investing 'foolishly' I'll be well prepared. I'm grateful to have a good job and as long as it lasts I'll hold off on collecting Social Security benefits.

  • Report this Comment On January 29, 2013, at 3:39 PM, Teako3 wrote:

    @zgriner

    The average person pays 6.2% with their employer paying another 6.2%. Only the selfemplyed pay the 12.4%. I have been in both positions. When i was selfemplyed my income was about 40% higher, so I had no problems paying both halves.

    Exactly what did just the Democrats do to make certian "that people would not be educated about Social Security, and so would become dependent." what a load of partisan ideological boovine excrement. teh average person does get it all back. Some peole die young and don't. some people live long lives and do. It is just like every other insurance program. come to think of it, SSI is also just an insurance program. If you become disbled you collect. If not, you don't.

    Remember,it was ansd is NOT a pension plan. It is a retirement insurance plan.

  • Report this Comment On January 29, 2013, at 3:41 PM, Teako3 wrote:

    @ETQ

    Who are these "the phonies, parasites and manipulators" who have " learned how to "game" the system"? Just how much are they stealing every year?

  • Report this Comment On January 29, 2013, at 4:44 PM, TMFGalagan wrote:

    @mdpbob - Thanks. I also wrote a follow-up article with some specifics on strategies. Check it out here: https://www.fool.com/retirement/general/2013/01/29/5-smart-s...

    best,

    dan (TMF Galagan)

  • Report this Comment On January 29, 2013, at 4:47 PM, maryoca wrote:

    Changes to Social Security have been very schizophrenic over the last 30-40 years. Sometimes they give and sometimes they take away. About 25 years ago, the income test took $1 in benefits for $2 in earnings above a certain limit until you attained age 72. Now they take away $1 for every $3 only up until you reach full retirement (65-66-67). Social Security was designed to be a replacement for lost earnings. I would argue that if you are still working at 66 or so, you have not lost earnings and therefore should not receive your full SocSec benefit.

    Some of you may remember the "notch". Congress passed a change in the way SocSec was computed in order to reduce the amount to be paid out. They wisely made the change far in the future. The bad news was not welcome for many of the retirees who found out they were getting much less than people just a year or two older.

    I hear the arguments about "means testing" and I haven't made up my mind. However when a relative who is worth millions asked me if he should take his SocSec (I used to work for SSA), I just wondered "why". Perhaps we should encourage the 1% to decline their SocSec.

  • Report this Comment On January 30, 2013, at 5:15 PM, FMcommenter wrote:

    Interesting comments, some great insights coupled with the normal whiners pointing out the many that cheat are destroying the system etc. We have 350 million participants in the system, we are a wealthy country capable of containing the cheating therefore we can have a viable safety net.. Being a retiree and having employed thousands of employees during my career my continuing observation is that an extraordinary percentage of the participants played the game fairly and are now being paid or will be paid.

    However an aged system with flaws must be repaired because over time small/large flaws due to the magnitude of participants represent huge costs.

    Two areas that need to be addressed are all W-2 income must be subject to SS and means testing.

    It is inconsistent with the concept of a safety-net

    that those of us having nominal or no need,draw SS at the highest levels. These changes alone would

    address 70% +/- of our shortfall

  • Report this Comment On January 31, 2013, at 9:26 AM, rayzur9 wrote:

    Whiners.. Thanks

    Evidently you've not shopped at Walmart.

  • Report this Comment On February 01, 2013, at 2:49 PM, JoDeeR wrote:

    I'm confused about -- and trying to find the answer to -- when I should start collecting Social Security.

    Alot of my life I didn't work outside the home as I followed my husband from place to place as his job moved him. But I did work for at least 15 years so I have paid in to Social Security.

    My husband says that I should start collecting when I turn 62.

    In so many Comments, people advocate waiting until fully vested at age 70. Others say take it while Social Security is still there.

    Which would be the better option for me? We don't need the money to live on but I don't want to "leave anything on the table".

    Thanks for any Comments!

  • Report this Comment On February 01, 2013, at 2:58 PM, DJDynamicNC wrote:

    Respect to Teako3 for yeoman's work of clearing up misconceptions regarding SSI and taxation. Impressive work.

  • Report this Comment On February 01, 2013, at 3:01 PM, DJDynamicNC wrote:

    JoDeer - it's extremely unlikely that social security will disappear. It is the premier social program and uniformly popular; there is about 27% of the country that wants to get rid of it (for comparison purposes, about 27% of the country are against background checks for gun purchases and George Bush's approval rating when he left office was about 27% so there's just not much to be done about that group) but it's overwhelmingly loved by the rest of us. It has been the single most effective program for reducing poverty that we've seen.

    Social Security is paid for out of a distinct tax and the cap on that tax is very low; lifting the cap so that all income was taxable for this would immediately address the issue. There are other solutions as well.

    This isn't to make your decision for you - I'm not qualified to offer retirement advice - but it is relevant to your decision and it's important that you have the facts. Social Security is not disappearing, no matter how much money wealthy billionaires dump into the Republican party in an attempt to get rid of it.

  • Report this Comment On February 01, 2013, at 3:05 PM, DJDynamicNC wrote:

    As for the argument on means testing - the problem with means testing is that then conservatives will use it as an excuse to further divide the country into "takers" and "makers" and then continue to attempt to weaken the program, or privatize it (so the financial sector can get at it - talk about takers who don't make anything!)

    What's more, there's a basic fairness issue, If you are paying in, you should get paid out. The better solution is lifting the tax cap. Then the wealthiest are paying more in than they get out, redistributing wealth (which otherwise tends to concentrate in fewer and fewer hands, as is the nature and indeed the point of capitalism) but still ensuring they get paid out from the program they paid into.

  • Report this Comment On February 01, 2013, at 8:56 PM, cyclelogical wrote:

    Means Testing...

    So you contribute into IRAs, 401Ks, and you save for the future.

    I, on the other hand, spent every dime that passes thru my fingers.

    Come retirement, they look at you and say "he's got means...he shouldn't get anything.

    They look at me and it's "poor guy...he's got nothing." "Let's tax the guy with means and give it to the guy with nothing."

    What message are we sending to future generations? Why do we continue to punish responsible behavior and reward irresponsibility???

  • Report this Comment On February 02, 2013, at 6:04 PM, UFOFred wrote:

    @JoDeeR

    Here's a strategy to consider (not to follow blindly -- do your own due diligence).

    If you are retired at 62, you should probably sign up for your small benefit then.

    If your husband is still working (and likely to live long), he should delay until his full retirement age or perhaps a bit longer (maybe up to age 70).

    When he files, you can also file for a spouse benefit (half of his). I assume that will be larger than your own benefit, which then stops.

    If you outlive him, then you can get a survivor benefit, which I think is equal to what his was.

    But before you do any of this, read the rules carefully to be sure that this is the right strategy for you.

  • Report this Comment On February 02, 2013, at 8:14 PM, J6R wrote:

    I am semi-retired at 73yrs old. I waited to draw SS till I was 70. When I got a letter from them that said"You cannot increase your benefits from this point;by,waiting any longer to accept SS." That was when I started getting my checks.

    I planned it this way. I was still working and making good money at 62,I was still working and making good money at 65 1/2 yrs old. I am not as healthy now,I am not able to make as much money now. I am grateful for the extra cash now.

    I know I will not be ahead on the dollar amount until I am 79 yrs old. I looked at my genes;my Grammy lived to 96,and Mom lived to 99. My dollar amount is getting closer every year. I plan to come out ahead. It is really fairly easy:"Pray like everything depends on God;and,work like everything depends on me." Good Investing!!!

  • Report this Comment On February 03, 2013, at 4:30 PM, RushBabe49 wrote:

    Drop by my blog "www.rushbabe49.com" and read my post "No Social Security or Medicare For Me".

  • Report this Comment On February 03, 2013, at 11:10 PM, stevec5792 wrote:

    Many misconceptions here. For one, the wealthy generally have far less earned income than you think which is taxed for SS/Medicare. Eliminate the limit, means test and it still won't have a long-term material affect on SS payments. The majority of their wealth is generated from unearned income and not subject to SS/Medicare taxation. Think Warren Buffett. $100,000 in annual salary. His only earned income and it is 100% subject to SS/Medicare. Yet, his income is quite a bit larger than that.

    Politics seems to be the root of all these problems since the "billionaires" dump so much into the Republican party. This is a silly argument and based on conveniently selective facts. You assume NO billionaires dump money into the Democratic party, which is ludicrous.

    There are some that consider the employer contribution not to be part of my overall contribution UNLESS I was self-employed. I say nonsense. Without that employer contribution, the SS/Medicare systems would never have been sustainable from day one. I calculate my "payback" of contributions to include the employer contribution. My calculations indicate I would need to live to about 80 no matter when I start collecting SS to start seeing a positive return on my "investment". This is likely not going to happen due to family history, but, honestly, I do not complain about it. I simply use the information for example purposes.

    That 1983 law that changed SS for the "worse"? Democratic-controlled Congress, Republican President. A factor that is conveniently ignored about that law is it immediately raised the earned income limit for SS/Medicare taxation and indexed that income limit to inflation. Otherwise, you would only be paying in $965 per year in SS tax. Think how much worse it would have been if it had not been for this alone or if it had been delayed by any number of years. Medicare tax limits were removed later so there is no income limit. How's Medicare doing today with no earned income limit on taxation?

  • Report this Comment On February 12, 2013, at 12:03 AM, inmocean wrote:

    Social security doesn't need a means test, as it's accomplished already by paying out a smaller amount to those who have paid in more.

    If you compute an average monthly income over the maxium 35 years of your social security earnings, SS then pays you back differing percentages in three tiers:

    90% of the first $791 of monthly income (poor)

    32% of montly income between $791 and $4768 (lower middle class) and

    15% of monthly income over $4768 (middle and up). There is a max because there's a max amount of Social Security income you could have earned in 35 years.

    Also, social security calls your payment a PIA (primary insurance amount) for the amount your monthly SS payment to you if you retire at full retirement age. So it should be like an insurance annuity, but has it been invested wisely?

  • Report this Comment On February 28, 2013, at 7:41 AM, thidmark wrote:

    The biggest threat to SS isn't "billionaire Republicans," it's a 16.5 trillion (and growing) debt. Don't let the left-wing loons confuse you.

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