We hear so many people today say that Social Security is just not going to be there. Further, most people approaching retirement are nervous about how to maximize their Social Security benefits. And then there is the problem of taxation on benefits as they are received. What to do?
I would like to make a case for the fact that Social Security benefits can be a huge value to you, and may provide a good foundation for your retirement income.
First, let me address the ability of the Social Security Administration (SSA) to pay the amount of income they now forecast for you on your statement of benefits. Here’s what the SSA says on its Web site:
“Without changes, in 2033 the Social Security Trust Fund will be able to pay only about 77 cents for each dollar of scheduled benefits. We need to resolve these issues soon to make sure Social Security continues to provide a foundation of protection for future generations.”
My assumption from this statement is that there isn’t a “cliff” that our nation will get to at some point in the future and all of a sudden everyone falls off and no one gets any more benefits at all. What it sounds like is we will get something, but maybe not what is currently projected. We need not assume that there won’t be anything at all but we can’t expect to be paid everything that is owed.
Second, in light of reduced payouts, allow me to discuss my observations about how you can maximize your Social Security benefits. Few people know anything about what the rules are surrounding Social Security (and it is vital that you know the rules of the financial games you are playing as taught by Money Mastery Principle #5: Know the Rules). We hear a lot but do not know anything for sure. This means we all need to study a competent source that will guide us in making good decisions. I suggest you study up on what the SSA says about your benefts, and then visit face-to-face with a person at the SSA office in your local neighborhood. Ask questions, get documentation, then once you feel you can talk intelligently about Social Security, go to a different qualified source outside the SSA and get their perspective as well.
What can knowing the rules in this case be worth to you? Studies show that most people lose an average of $30,000 of Social Security benefits by not knowing they even exist. Read, review, study, visit competent sources and be prepared before you reach age 62, the earliest age you can receive these benefits.
Third, be aware of the way SS benefits can be taxed. If you make too much income from other sources, your Social Security benefits will be subject to income tax and this can have an impact on your retirement. This usually happens only if you have other substantial income. There is more information about this at http://www.ssa.gov/planners/taxes.html. In future blogs I will explain in more detail the impact taxation can have on Social Security benefits.