Are Social Security benefit cuts a real possibility? What to know, and how best to plan for it

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The Arizona Republic 05 September, 2021 - 09:49am 18 views

What will happen when Social Security runs out?

If no changes are made before the fund runs out, the most likely result will be a reduction in the benefits that are paid out. If the only funds available to Social Security in 2035 are the current wage taxes being paid in, the administration would still be able to pay around 75% of promised benefits. monotelo.comWhat Will Happen When Social Security Runs Out?

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Deciding when to start claiming Social Security benefits is one of the most important decisions in retirement. Unfortunately, there's no universal answer that's perfect for everyone. There are pros and cons to every option. To make the best decision for your financial plan, you have to consider all the trade-offs and go with whichever best suits your circumstances.

The following information should help you think about the merits and drawbacks of each option.

In general, the longer you wait to start claiming Social Security benefits, the higher your monthly payout will be. Full retirement age is 66 for people born between 1943 and 1954, but rises two months per year for those born between 1955 and 1959 and rises to 67 for people born in 1960 or later.

Full retirement age refers to the age at which you'd receive your full benefit. You can elect to start claiming Social Security income as early as age 62, but you'd only receive 70% of the benefit. Conversely, you can increase monthly payments to 132% of the full benefit by delaying until age 70. There's currently no further increase to benefits beyond age 70.

The average monthly payout is just over $1,500 right now, but someone claiming at age 66 could receive more than $3,100 if they had high enough income throughout their life.

Doing some quick back-of-the envelope math, based on that average benefit of $1,500 at age 66, we can quantify the typical impact of accelerating or delaying the claim. If you turn on the income stream at 62, you'd only receive $1,050 each month. Waiting until 70 pushes that up to $1,980 each month. The table below shows the cumulative benefits claimed at different ages, based on starting Social Security at various points. It assumes $1,500 of monthly income at full retirement.

Willfully reducing your monthly income might be a non-starter for many people. After all, you can nearly double your monthly benefit by waiting. If you're on the high end of the benefit scale, you'd reduce your annual income by $6,840 by taking benefits at 62 instead of 67. From that perspective, it doesn't make much sense to accept such a drastic cut in payments.

It's not always that simple, however. First and foremost, it takes a while for the higher payments to catch up with the amount you miss out on from not taking smaller payments early. If you first claim benefits at age 67 instead of 62, you wouldn't surpass the cumulative payouts of the earlier election until age 76. Those extra five years of monthly checks really add up. Even the one-year delay past age 66 takes 12 years to break even.

Social Security was ultimately put in place to provide guaranteed income to retirees. If you need income prior to 67, then that's exactly what the program is intended to do. Not everyone has the good fortune of maintaining high earned income at the tail end of their career. You might need extra cash flow to meet basic needs and lifestyle goals. Some retirees face higher healthcare expenses that aren't covered by Medicare, employer-provided health plans, or supplemental medical insurance. Social Security income can also help you delay cashing out assets in retirement accounts. Some people with family histories of limited longevity might also want to take as much income as early as possible.

Whatever the reason, there are certainly circumstances that make sense for claiming Social Security earlier than 67. Make sure you've considered these variables before making your decision.

The argument for delaying payments is relatively straightforward. You can significantly improve your monthly payouts if you wait longer. That's especially relevant for people who have more than enough cash flow to meet all of their needs and wants without Social Security benefits.

People who enjoy their work and remain gainfully employed into their late 60s are in a better position to delay benefits. Other people have guaranteed income from pensions or annuities, and they might be completely comfortable with that cash flow. Other people might have retirement investment accounts that are advantageous to spend down based on the specific economic conditions at the time. In some cases, maximizing lifetime income would require a household to delay Social Security benefits as long as possible.

Higher Social Security benefits are especially important for people who are worried about longevity risk. Outliving your savings is a serious concern, and it's a central focus of any good retirement plan. Healthy people with long-lived family members might need to plan for 30 years of retirement. Advances in nutrition and medical technology are helping people to live longer, but that also comes with increased costs. If you can responsibly hold out until age 70 to start claiming Social Security, you might find yourself in a much more comfortable position throughout your 80s.

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Read full article at The Arizona Republic

Don't let these 4 Social Security surprises ruin your retirement

Times Record News 05 September, 2021 - 03:02pm

Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

When you make your retirement plans, chances are good you'll expect Social Security to be an important source of financial support. But while there's nothing wrong with relying on this entitlement program, you can't afford to be unrealistic about what it can do for you. 

To make sure you aren't left in dire financial straits because you have an overly rosy perception of Social Security, make sure these four realities of the benefits program don't come as a surprise.

If you're counting on Social Security to be the only income source you need to retire, you are in for a very unpleasant wake-up call. 

Most financial experts advise retirees to ensure they have enough money coming in to replace around 80% of pre-retirement earnings. That's necessary to avoid a major decline in quality of life, especially as retirees often face new expenses such as additional healthcare costs.

Social Security simply isn't designed to provide 80% of earnings. It's meant to replace about 40% of pre-retirement income with the rest of your money coming from a pension or savings. If you don't have income from these other sources, you're going to have a hard time covering the necessities. 

Since you fund Social Security with tax payments, you're probably not expecting the IRS to come calling once you start collecting benefits. But around 50% of retirees pay some federal taxes on their benefits, and that number will only grow over time.

That's because the thresholds at which benefits become partially taxable -- $25,000 for single people and $32,000 for married joint filers -- aren't indexed to inflation.

Now, only "provisional" income counts, which is half your Social Security benefits, all taxable income, and some non-taxable income. But due to natural wage growth, more and more people are going to end up with provisional incomes above the stated thresholds, and they will all end up losing some of their benefits to taxes. That could come as a huge shock if you aren't expecting it.

Many seniors have Medicare premiums automatically withdrawn from their Social Security checks, and this is yet another instance where you don't want to be caught by surprise with benefits lower than you thought they would be.

Unfortunately, healthcare inflation tends to increase more than the periodic Social Security Cost of Living Adjustments (better known as Social Security raises). While there are rules in place to prevent Medicare premiums from rising more than the annual Social Security benefit increase, there are many years when seniors see hardly any extra money in their checks, because their entire benefit bump is eaten up by rising Medicare costs. 

Finally, you may not realize that if you start receiving Social Security before your full retirement age, you'll get less than your standard benefit amount. Full retirement age varies by birth year, but it falls between 66 and 2 months and 67 years old.

If you don't know when your FRA is or don't know that claiming early can reduce your benefit by as much as 30%, you could have a big problem. You may end up having to work longer to delay a benefits claim and avoid a significant reduction in Social Security income -- or end up having to accept much smaller monthly checks than you'd hoped for. 

It's crucial you're prepared for all of these realities and you have plenty of supplementary savings so you can cope with the fact Social Security benefits may not go nearly as far as you originally believed.

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Social Security will be insolvent by 2033

The Washington Post 05 September, 2021 - 03:02pm

The Social Security Administration needs more money.

The government agency's latest report shows that the combined trust funds used to pay Social Security retirement, survivor and disability benefits will only be able to pay out as scheduled through 2033.

After that, the program will be able to pay 78% of benefits as scheduled.

Major solutions to fix the shortfall will most likely need to come from increasing taxes or slashing benefits.

Check out this video for a case study based on a solution that will leave retirees with less money.

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Sorry to Say: You Probably Shouldn't Claim Social Security at 62

MSN Money 05 September, 2021 - 03:02pm

Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

When you reach age 62, you hit an important milestone: You can start collecting your Social Security retirement benefits.

Unfortunately, just because you can file for your checks doesn't necessarily mean you should. In fact, chances are good claiming at 62 would be the wrong financial move for you. Here are a few reasons why. 

Age 62 is well before your full retirement age (FRA). Depending on your birth year, your FRA is between 66 and 2 months and 67. Unfortunately, for each month you claim your benefit ahead of your FRA, you're subject to an early filing penalty that shrinks your Social Security check. 

The monthly penalties can add up quickly if you've claimed at 62, which is at least four years and two months before FRA. You'll see a 6.7% annual reduction in benefits for each of the first three years you're early and another 5% for each year prior. If you have a full retirement age of 67 and claim at 62, your checks will be a whopping 30% smaller than if you'd waited. 

Retirement benefits from Social Security are protected against inflation thanks to cost of living adjustments (COLAs). These are calculated on a percentage basis, such as a 1% annual raise.

That means if you've reduced the starting size of your monthly check by claiming benefits at 62, every single raise going forward will be smaller in dollar terms. You'll never catch back up to where you would have been if you had waited to start your benefits until later. 

In some cases, claiming benefits early pays off, like if you pass away before the end of your projected life expectancy. But many people are living much longer now than they did when Social Security was initially designed. The result is that around 6 in 10 retirees end up with more lifetime benefits if they delay claiming their checks until age 70. 

While starting Social Security at 62 means you get payments years sooner, you could end up really regretting shrinking the size of your checks if you get tens of thousands of dollars less income over the course of your retirement. That's especially true if your savings start to run dry late in your life and you're struggling to survive on a reduced Social Security benefit.

If you are the higher-earning spouse, claiming Social Security at 62 could be detrimental to your husband or wife's financial security after you pass away.

See, your spouse is entitled to survivor benefits when you die. Unfortunately, if you've reduced your benefit by claiming it early, the monthly survivor benefit check is smaller.

Since chances are good your household budget is based around both partners receiving Social Security income, the death of a spouse is almost always a huge financial shock. Leaving your spouse with a reduced survivor benefit due to claiming Social Security at 62 could only exacerbate the financial struggles they face. 

So, unless you're OK with leaving less for a spouse, getting smaller checks for life, and likely getting less lifetime income than you otherwise could, claiming Social Security at 62 is probably not the smartest financial move. Be sure to consider all of these downsides before you decide to pull the trigger and file for benefits -- even if getting checks in the mail seems like an attractive proposition at first glance.

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We cannot let the pension fund industry stifle a proper social security scheme

TimesLIVE 05 September, 2021 - 03:02pm

Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

When you reach age 62, you hit an important milestone: You can start collecting your Social Security retirement benefits.

Unfortunately, just because you can file for your checks doesn't necessarily mean you should. In fact, chances are good claiming at 62 would be the wrong financial move for you. Here are a few reasons why. 

Age 62 is well before your full retirement age (FRA). Depending on your birth year, your FRA is between 66 and 2 months and 67. Unfortunately, for each month you claim your benefit ahead of your FRA, you're subject to an early filing penalty that shrinks your Social Security check. 

The monthly penalties can add up quickly if you've claimed at 62, which is at least four years and two months before FRA. You'll see a 6.7% annual reduction in benefits for each of the first three years you're early and another 5% for each year prior. If you have a full retirement age of 67 and claim at 62, your checks will be a whopping 30% smaller than if you'd waited. 

Retirement benefits from Social Security are protected against inflation thanks to cost of living adjustments (COLAs). These are calculated on a percentage basis, such as a 1% annual raise.

That means if you've reduced the starting size of your monthly check by claiming benefits at 62, every single raise going forward will be smaller in dollar terms. You'll never catch back up to where you would have been if you had waited to start your benefits until later. 

In some cases, claiming benefits early pays off, like if you pass away before the end of your projected life expectancy. But many people are living much longer now than they did when Social Security was initially designed. The result is that around 6 in 10 retirees end up with more lifetime benefits if they delay claiming their checks until age 70. 

While starting Social Security at 62 means you get payments years sooner, you could end up really regretting shrinking the size of your checks if you get tens of thousands of dollars less income over the course of your retirement. That's especially true if your savings start to run dry late in your life and you're struggling to survive on a reduced Social Security benefit.

If you are the higher-earning spouse, claiming Social Security at 62 could be detrimental to your husband or wife's financial security after you pass away.

See, your spouse is entitled to survivor benefits when you die. Unfortunately, if you've reduced your benefit by claiming it early, the monthly survivor benefit check is smaller.

Since chances are good your household budget is based around both partners receiving Social Security income, the death of a spouse is almost always a huge financial shock. Leaving your spouse with a reduced survivor benefit due to claiming Social Security at 62 could only exacerbate the financial struggles they face. 

So, unless you're OK with leaving less for a spouse, getting smaller checks for life, and likely getting less lifetime income than you otherwise could, claiming Social Security at 62 is probably not the smartest financial move. Be sure to consider all of these downsides before you decide to pull the trigger and file for benefits -- even if getting checks in the mail seems like an attractive proposition at first glance.

Discounted offers are only available to new members. Stock Advisor will renew at the then current list price. Stock Advisor list price is $199 per year.

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IIY Social Security benefits 2021: How much the shortfall could cost you

CNBC 05 September, 2021 - 03:02pm

Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

Growth stocks are always an exciting place to invest because they represent companies with strong cash flows, and revenue and earnings that are expected to outpace the industry average. Additionally, with the coronavirus situation now under much better control -- albeit with uncertainties remaining -- the U.S. economy is now on the mend and in expansion mode, a phase of the cycle that growth stocks tend to do well in.

With that said, we put together a panel of Motley Fool contributors and asked them to identify three great growth stocks to invest $1,000 in. They chose the digital payments processor StoneCo (NASDAQ:STNE), the global software-as-a-service company Workiva (NYSE:WK), and the cryptocurrency bank Silvergate Capital (NYSE:SI). Read on to see why they think these three companies could have further potential ahead. 

Nicholas Rossolillo (StoneCo): Brazil's leading digital payments processor, StoneCo -- often compared to Square here in the states -- is having a rough go of things this year. Shares are down 45% through the first eight months of 2021 and down 10% from a year ago.  

Nevertheless, the most recent slide comes following Stone's second-quarter earnings update. The core business is booming, but the pandemic continues to take a toll on Brazil's economy. In tandem, Brazil is updating its rules and regulations determining digital payments and issuance of credit to businesses. It's this digital credit system change that led to an 8% year-over-year decline in Stone's Q2 revenue to 613 million reais (about $119 million). As a result of changes to how credit is issued in Brazil, and malfunctioning of the new credit registry system, Stone decided to temporarily freeze its credit segment for its merchants. This pause is expected to last three to six months.

The temporary loss in revenue hurts, but Stone's core payments platform is doing just fine. Total payment volume increased 59% year over year, and revenue excluding the credit division rose 68%. The acquisition of small business software company Linx was also completed in July, further enhancing the long-term growth potential Stone has as it helps get South America's largest economy up to speed with the digital times.  

After the steep tumble in share price, Stone is valued at about 24 times trailing-12-month sales -- still a premium price tag, but not totally unreasonable given how fast the company's primary business is growing and the potential the merger with Linx presents. For investors looking for a company with massive potential but who don't mind big swings in valuation, Stone is still a top-notch option within the fintech stock universe.

Keith Noonan (Workiva): Publicly traded companies need to abide by precise reporting standards, and Workiva makes it easy to meet those requirements and fulfill other data sharing and compliance needs. The company's cloud-based software plugs in data from the necessary sources in order to update reporting and accounting info, thereby automating processes that can otherwise leave greater room for errors or potential abuse. It also helps companies share, organize, and analyze data across a huge variety of sources. 

For companies that want to list on major exchanges and remain in the good graces of the Securities and Exchange Commission, Workiva has established itself as an early leader in the category. European markets are adopting SEC-like digital reporting and enterprise data-sharing requirements, which could pave the way for a major new growth opportunity, and the company also provides reporting solutions for private companies. 

The idea of simplifying complex, often arduous, processes and taking elements of risk out of the equation has a lot of inherent value. 75% of Fortune 500 companies are already using the company's services, and Workiva should be able to continue delivering strong performance so long as it retains a leadership position in its relatively niche service categories.

Even better, the fintech specialist will have opportunities to continue expanding its service catalog. Leveraging its existing reporting, compliance, and data-sharing software foundations should help it bridge users into new offerings that will increase average spending per customer.

Bram Berkowitz (Silvergate Capital): Ever since cryptocurrency prices began to soar last year, the stock price of Silvergate Capital has followed suit and is now up more than 664% over the last year. While the company is technically a bank, it is anything but your traditional lender.

Several years ago, management at Silvergate Capital realized that cryptocurrencies would one day become a popular investable asset. That led it to build an in-house payments system at the bank called the Silvergate Exchange Network. SEN is a payments network that can clear transactions in U.S. dollars any time, 365 days a year, between two users in the network, which is great for institutional crypto traders and crypto exchanges because cryptocurrencies trade around the clock.

Silvergate doesn't actually hold any cryptocurrencies on its balance sheet, but the unique and efficient payments system lures many institutional traders and exchanges that bring large sums of zero-cost, sticky deposits with them. This characteristic has given Silvergate one of the strongest deposit bases in all of banking -- the bank practically pays zero interest on its entire deposit base. As a bank, Silvergate is also able to cross-sell other fee income banking products to customers on SEN. The network also gets more attractive for other clients to join as it grows.

Banking crypto clients and helping facilitate their transactions could just be the beginning for SEN. Earlier this year, Silvergate announced that it would become the exclusive issuer of Facebook's Diem U.S. dollar stablecoin, which is a digital asset that will be pegged to the U.S. dollar. Management says that it will make money on Diem through transaction fees on the minting and burning of the stablecoins, yield on the reserve deposits that back the stablecoin (and which Silvergate will manage), and a new customer segment that Silvergate can sell traditional banking services to.

Silvergate Capital does not trade cheap on a price-to-earnings basis or in terms of price-to-tangible book value, but when you consider the strength and potential of its existing business, and the future of stablecoins at the bank, it's hard not to be excited.

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