Social Security retirement a Boomers’ dilemma

A great deal continues to be written on the “baby boomer” generation, those people who were born from 1946 to 1964 in the United States. There were approximately 76 million people born in the U.S. over that time, and slightly over 11 million of those have died. However, the number of people in this age group remains at approximately 76 million due to immigration. It is estimated that 10,000 baby boomers reach age 65 each day. Of those people ranging in age from 50 to 68, millions have made or are in the midst of making critical decisions with regard to their retirement. Let’s look at a brief history of the Social Security retirement program and some of the decisions that must be made with regard to its integration into your overall retirement plan.

The Social Security Act of 1935 was passed by Congress and signed into law by President Franklin Roosevelt. It was envisioned that Social Security would be only one leg of the “three-legged stool” of retirement security (the other two legs being retirement plans and personal savings). It was designed to serve as a floor of minimal retirement income for low-income wage earners and a supplement for higher wage earners. The program began the following year, and the first person to receive a monthly retirement check was Ms. Ida Mae Fuller. Her first monthly check in the amount of $22.54 was issued on Jan. 31, 1940. It is interesting to note that Ms. Fuller continued to receive a monthly retirement benefit from Social Security until her death in 1975 at the age of 100. There have been many additions and modifications to the Social Security Act since its inception in 1935, and there will continue to be changes in the future. But, for now, let’s look at some of the options that today’s retiree has to consider. First of all, one must decide when to retire. Secondly, he must decide on when to begin taking his monthly Social Security retirement benefit.

A qualified participant may begin receiving a retirement check as early as age 62. However, he will receive a benefit of only 75 percent of what he would have received at his full-retirement age of 66. The longer you postpone taking your benefit, the higher your monthly benefit will be. A participant who has reached full-retirement age may take his benefit and continue to work without a reduction in his benefit. A participant who has reached full-retirement age may delay taking his benefit in order to gain an 8% increase in the monthly benefit payment for each year delayed up to age 70. So, if a person chose to delay his benefit until age 70, he would receive a monthly benefit equal to 132 percent of his benefit at the full-retirement age of 66. A person who has forty or more quarters of coverage under Social Security may begin to receive a retirement benefit at any time after age 62. Or, if he so chooses, he would never have to take a benefit. You must actually apply to receive a Social Security retirement benefit; it is not automatic at any time.

Next, let’s look at some of the other issues to consider with regard to Social Security retirement. If you choose to begin your benefits early (prior to your full-retirement age), there will be a reduction in benefits of $1 for every $2 you earn in excess of the wage limit, which changes each year. In 2014, the reduction applies to any earnings in excess of $15,480. Therefore, taking the benefit prior to full-retirement age, may not make sense for those who continue to work full time.

Another factor to consider is your marital status. If you are married, your spouse may be entitled to a portion of your benefit. In most cases, the law allows the spouse of a person who has attained full-retirement age to receive one-half of that benefit or their own Social Security retirement benefit, whichever is greater (if the spouse is below full-retirement age, her benefit will be permanently reduced).

With the spousal benefit in mind, one possible retirement strategy to maximize Social Security retirement benefits for the family involves the “file and suspend” option. In this case, the higher earning spouse chooses to file for retirement benefits at full-retirement age and then suspend them until a future date. This action allows the spouse and any qualified dependent children to receive dependent benefits under Social Security retirement. In the meantime, the higher earning spouse is accruing delayed retirement credits worth 8% per year up to age seventy. Another thing that makes this option particularly attractive is that the system is set up in such a way that the surviving spouse will receive the higher of the two benefits when her/his spouse dies.

This article has touched on a few of the many issues involved in one area of retirement planning — Social Security. You should work with your local Social Security office as you plan for retirement. There are many helpful items to be found at their website (www.ssa.gov) including “My Social Security” that allows you to track your covered earnings and estimate your benefits at various times you might choose to take them. In addition, you should seek the assistance of a qualified financial adviser to assist you on your journey to retirement.

Stanley Adamson, Ph.D., is an associate professor in finance and general business at Missouri State University and has held the Baker Chair of Insurance since 2008. Adamson specializes in risk management, employee benefits, property and liability insurance, as well issues of broad interest to the insurance industry. Email: stanleyadamson@missouristate.edu.