Claiming Social Security at 67? You May Need to Rethink That

Business

Motley Fool 03 September, 2021 - 05:22am 6 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?

That's according to a new report from the programs' trustees released Tuesday, which moved up, by one year, the date for the depletion of Social Security's reserves. Medicare is still expected to exhaust its reserves in 2026, the same date as estimated last year.

The pandemic's hit to the economy — when unemployment rocketed to almost 15% — has rippled through the nation, prompting some older workers to take early retirement, while millions of women with children have left the workforce due to remote school or lack of daycare. At the same time, fewer adults are opting to have children, depressing the birth rate. A shrinking workforce may also pose trouble in the longer-term for the Social Security program, since it relies on a payroll tax to finance benefits.

"The finances of both programs have been significantly affected by the pandemic and the recession of 2020," the trustees said in the report.

Employment, earnings, interest rates and economic growth plummeted in the second quarter of 2020 after the pandemic hit the United States, the report noted.

Even so, the report added that "given the unprecedented level of uncertainty" there was no consensus on what the long-lasting effects of the pandemic will be on the two benefit programs. 

Fewer people are having children amid the pandemic, a trend that will continue until 2023, the report forecasts. The birth rate is expected to drop to 1.54 children per woman this year, and rise to 1.62 in 2022. By 2023, the rate should recover to 1.71 children per woman, the rate it would have been without the pandemic, the trustees said.

Granted, the U.S. birth rate has been declining for decades, reaching a 42-year low in 2020. That has long-term implications for the labor market and retirement programs, with some demographers describing it as a "crisis."

Meanwhile, death rates for people over 15 years old rose more than 16% last year due to the pandemic and will remain elevated through 2023, the report said.

When the Social Security trust fund is depleted, the government will be able to pay 78% of scheduled benefits, the report said.

Because a reduction in benefits of that magnitude would cause a political uproar, it is likely that Congress would find ways to recover the lost benefits, either by hiking the payroll taxes paid by current workers or by increasing government borrowing to cover the shortfall.

Government economic experts who prepared the Social Security report said recent increases in inflation mean the cost-of-living adjustment (COLA) for 2022 will approach 6%, a whopping jump from the 1.3% COLA awarded for this year. But recipients will have to wait for that bump because the Social Security Administration adjusts its payments only once a year. That means seniors and other Social Security beneficiaries wouldn't receive the increase until January 2022. 

The Medicare "Part B" premium for outpatient coverage is projected to rise by $10 a month in 2022, to $158.50 under the report's intermediate assumptions.

The new report, which has been delayed for a number of months, represents the government's effort to assess the impact of last year's pandemic and recession on the financial health of the two big benefit programs.

The U.S. economy lost a staggering 22.4 million jobs in March and April 2020 as the pandemic forced businesses to close or cut their hours and the economy went into recession.

But the recession turned out to be brief and hiring has bounced back as economic growth has resumed. Employers have brought back 16.7 million jobs since April 2020, but that gain still leaves the labor force 5.7 million jobs below where it was before the pandemic hit.

For Breaking News & Analysis Download the Free CBS News app

Copyright © 2021 CBS Interactive Inc. All rights reserved.

Quotes delayed at least 15 minutes.

Market data provided by ICE Data Services. ICE Limitations. Powered and implemented by FactSet. News provided by The Associated Press. Legal Statement.

Read full article at Motley Fool

Delaying Social Security Could Backfire on You in These Scenarios | The Motley Fool

The Motley Fool 04 September, 2021 - 04:07am

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.

You'll often hear that it's a good idea to delay your Social Security filing until the age of 70. Though you're allowed to sign up for benefits as early as age 62, you're not entitled to your full monthly benefit based on your wage history until you reach full retirement age (FRA), which kicks in at 66, 67, or somewhere in between.

However, for each year you hold off on claiming Social Security past FRA, your monthly benefit gets to grow by 8%. And that boost will then remain in effect for the rest of your life.

Once you turn 70, you can no longer grow your monthly benefit, so there's no sense in delaying your filing past that point. But in some cases, it also doesn't pay to wait until 70 to sign up for benefits. And if these scenarios apply to you, it could pay to claim Social Security much earlier.

Social Security is actually designed to pay you the same total lifetime benefit regardless of when you sign up, assuming you live an average lifespan. But if you don't expect to have a long retirement ahead of you, then it's generally better to file early.

Say you're entitled to $1,500 a month in Social Security at a FRA of 67. If you delay your filing until age 70, you'll boost your monthly benefit to $1,860, but you'll also collect 36 fewer payments. Plus, it'll take you until age 82 1/2 to break even. If your health isn't great and you think you'll pass away before 82 1/2, you should file earlier.

Your goal should be to have money available in your IRA or 401(k) plan for withdrawals throughout your entire retirement. But if delaying Social Security causes you to spend down your savings too quickly, then you could end up in a tough financial spot later in life.

Leaving some money in your IRA or 401(k) is important, because that money can, and should, stay invested so it grows into a larger sum. But your money can't grow if there's none left.

Even if you never worked, if you're married to someone who's entitled to Social Security, you may be eligible to collect a spousal benefit. In that case, your benefit will equal 50% of the sum your spouse collects each month.

But whereas it's possible to delay a primary Social Security benefit and grow it into a larger sum, there's no such thing as growing a spousal benefit. It doesn't matter whether you claim your spousal benefit at FRA or afterward -- you'll get the same monthly payment. And so waiting will only deprive you of money you could've had access to sooner.

While delaying Social Security is a good way to boost your retirement income, it's not the right move for everyone. Consider your personal circumstances carefully before making the decision to hold off on claiming benefits past FRA.

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.

Stock Advisor launched in February of 2002. Returns as of 09/05/2021.

Making the world smarter, happier, and richer.

Market data powered by Xignite.

Business Stories