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Financial Times 05 July, 2021 - 12:42am 41 views

When Social Security Runs Out: What the Program Will Look Like in 2035

Yahoo Finance 04 July, 2021 - 08:00pm

See what else awaits Social Security in the near future and find out what the program will look like in 2035 -- you might want to learn how to stretch your money now.

Part of the problem can be attributed to longer life expectancies, a smaller working-age population and an increase in the number of retirees. By 2035, the number of Americans 65 and older will increase to more than 78 million from about 56 million today. As a result, more people will be taking money out of the Social Security system -- but there will be fewer people paying into it.

That doesn't mean the program will run out of money entirely, though. Payroll taxes are expected to cover about 76% of scheduled benefits. But, if the 21% funding gap isn't filled, retirees could get lower Social Security payments or workers might need to pay more into the system. If no changes are made, this is what Social Security could look like in the future, according to experts.

If you plan to rely on the program in 2035, keep in mind there's a chance you could receive less in Social Security benefits than you might have expected. If no changes are made to deal with the trust fund shortfall, benefits will have to be reduced by 23%, according to the 2020 annual report from the trust funds' board of trustees.

For many retired adults, that kind of cut in benefits would represent a big financial hit. Social Security provides at least half of the income for 50% of elderly married couples and 70% of elderly single people, according to the Social Security Administration.

Some experts doubt that a big slash in Social Security benefits is forthcoming.

"The ramifications of that event would be beyond traumatic for everyone in the country," said Joseph E. Roseman Jr., a Social Security expert and retirement planner at Retirement Capital Planners. "You've got a national disaster on your hands."

That's why he thinks Congress will step in before 2035 to prevent such a deep cut in benefits. Mary Beth Franklin, a Social Security expert and contributing editor for Investment News, agrees that a big cut in benefits is unlikely.

"As pensions are disappearing, people are relying more on Social Security," she said. Because of the program's popularity, politicians won't want to tinker with benefits for existing retirees and will likely have to find other solutions to the trust fund shortfall.

Even though Social Security isn't expected to run out of money for 15 years, several options for changes have already been floated to deal with the budget shortfall. These options include:

Increasing the wages subject to Social Security taxes

Read on to learn more about the details of each of those proposals and how they would affect Social Security if implemented.

If benefits aren't cut, tax revenue for the program will likely have to increase. One way to do that is to increase the payroll tax rate. Social Security is funded through a 6.2% payroll tax that workers pay, plus another 6.2% that employers pay (self-employed people have to pay the full 12.4%).

If the trust fund reserves become depleted, the payroll tax would need to increase by 3.14 percentage points to increase revenues enough to sustain the program, according to the 2020 annual report from the board of trustees. If nothing is done until 2035, the increase would need to be 4.13%.

However, Roseman doesn't expect Congress to raise the payroll tax to boost trust fund reserves. "There's probably the least appetite for that than anything you can look at," he said. "It's a tax increase."

An increase in the payroll tax rate could take different forms. Currently, the total payroll tax is allocated equally between the employee and the employer. The projected tax increase of 3.14% could be allocated equally among employers and employees or allocated more to the employer to hide the tax hike from taxpayers.

A legislative proposal called the Social Security 2100 Act from Rep. John Larson (D-Conn.) favors an equal split. It would raise the Social Security tax rate to 7.4% for both the employer and the employee. The bill has gained some support but so far has stalled in Congress, Politico reported.

Another option to increase tax revenue to fund Social Security is to raise the amount of earnings subject to taxation. Only the amount of wages up to the Social Security contribution and benefit base are subject to Social Security taxes. This amount is indexed for inflation, so it was $132,900 in 2019 and is now $137,700 for 2020.

To help the trust fund remain solvent, the taxable wage limit would have to be even higher -- or lifted entirely -- so that all income would be subject to the payroll tax, Franklin said. This change would affect high-income people whose earnings above $137,700 currently escape taxation for Social Security.

Raising the taxable wage limit would only affect people whose wages exceed the current contribution and benefit base. For example, if you make $80,000 per year, you pay Social Security taxes on all of your income, so whether the limit is $130,000, $300,000 or removed entirely, it doesn't affect your payroll taxes.

However, if you make $250,000 as a W-2 employee in 2020, you only pay Social Security taxes on the first $137,700, for a total of $8,537.40. If the limit went up to $300,000, you would pay Social Security taxes on all of your $250,000 income, for a total of $15,500.

Because tax hikes aren't popular, Congress will more likely raise the full retirement age for Social Security benefits, Roseman said. That means younger generations will have to work longer before they can start collecting benefits.

Currently, the age at which you can collect full retirement benefits ranges from 65 if you were born in 1937 or earlier, to 67 if you were born in 1960 or later.

Both Roseman and Franklin said there are proposals to raise the full retirement age gradually to 69 -- that would keep more money in the trust funds. At the same time, it might eliminate a popular strategy that retirees use to maximize Social Security income. Currently, if you delay collecting retirement benefits past your full retirement age, your benefit increases each year you wait until age 70, Roseman said.

As life expectancy increases, raising the retirement age might seem like a reasonable response because people have longer to work. However, raising the retirement age essentially cuts benefits because it delays the payments of benefits that people are expecting. In addition, the overall longevity increases haven't applied to many low-income workers, who have shorter life expectancies than wealthy people. People with low incomes would likely be the hardest hit by increasing the retirement age.

Retirees receiving Social Security benefits typically see their checks increase slightly most years to keep pace with inflation. These cost-of-living adjustments -- or COLAs -- are based on the consumer price index. After no cost-of-living adjustment in 2015, the last few years saw a 0.3% bump for 2016, a 2% increase in 2017, a 2.8% boost for 2018, another 2.8% increase for 2019 and a 1.6% increase for 2020.

To keep the Social Security trust funds solvent, there could be changes to cost-of-living adjustments, Roseman said. Most likely, the formula wouldn't change for people born before 1960. But, people born after 1960 might see a reduced COLA, he said.

If that happens, benefit checks will not keep pace with inflation. People who rely heavily on Social Security might have to find ways to reduce spending to make ends meet.

As the past few years have shown, inflation adjustments to Social Security benefits can be small or nonexistent. Low cost-of-living adjustments could make it very hard for people living on fixed incomes to pay their expenses in places where housing and rent costs are rising each year. Plus, seniors spend more than younger people on healthcare costs, which tend to rise faster than the cost of inflation.

According to the 2020 annual report from the board of trustees, the funding shortfall could be solved by cutting benefits by 19% for all Social Security beneficiaries -- including those who are currently receiving benefits -- or cutting benefits by 23% for future Social Security beneficiaries. If nothing is done until 2035, however, all benefits would need to be reduced by 25%.

Should the Social Security reserves run out in 2035, benefit cuts could take various forms. The simplest cut would be an equal one across the board. Another option would be to cut benefits differently based on income. For example, the top 25% or top 50% of earners might see their benefits reduced, whereas benefits for lower-income Social Security recipients would remain intact.

Similarly, Social Security could become a means-tested benefit, determined in part by the recipient's income or other assets. Currently, if you paid into the Social Security system, you'll receive benefits regardless of your income or assets.

As of 2020, the average retirement benefit is $1,503 per month. If benefits were cut by 20% across the board, the average benefit would drop by about $301 each month, or $3,612 per year. If benefits were to drop by 23%, the monthly decline would be $346, or $4,152 per year.

As Roseman sees it, the Social Security shortfall problem is easy to solve -- but it's not easy to get Congress to make the necessary changes. "Nobody wants to compromise," he said.

Nonetheless, Roseman doesn't expect Social Security to run out of money. He tells his clients to count on it as a source of retirement income, but it shouldn't be their only source of retirement income. "I would never advise anybody to live on Social Security alone," he said.

This article originally appeared on GOBankingRates.com: When Social Security Runs Out: What the Program Will Look Like in 2035

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How much do you know about claiming Social Security retirement benefits? Take this quiz and find out

CNBC 04 July, 2021 - 02:51pm

The age at which you claim Social Security helps determine how big your monthly retirement benefit checks will be for life.

If you wait until your full retirement age — generally 66 or 67 — to claim, you will get 100% of what you earned based on your contributions to the program. And if you wait until 70, you will get a bigger check for waiting.

But there's no benefit to holding off past 70, because your benefits will not get any bigger.

Yet just 54% of respondents to a recent MassMutual quiz were able to correctly answer a true/false question regarding whether their monthly checks will increase if they delay claiming retirement benefits past age 70.

Not knowing the right answer can cost you.

If you wait past 70, you can only go back six months to make up for lost monthly checks, said David Freitag, a financial planning consultant and Social Security expert at MassMutual.

That answer was part of a 12-question, true-or-false quiz given to 1,500 people, ages 55 to 65, who have not yet claimed their benefits.

Other facts about the program also tripped some respondents up.

The results showed that 22% of near-retirees did not know that if a spouse passed away you cannot collect both your own and your spouse's benefits. (Typically, you get either yours or your spouse's, whichever is higher.)

Meanwhile, 30% of respondents did not know that they might be able to claim benefits on their ex-spouse's work record. (You must have been married for at least 10 years, among other qualifications.)

Each of those benefits comes with distinct rules, Freitag said, which means it's important to understand them before claiming.

"Although survivor benefits sound like spousal benefits, they're totally different," he said.

The results were not all bad.

Most respondents — 94% — were able to correctly say that their retirement benefits will be reduced if they claim them before full retirement age (generally 66 or 67, depending on your year of birth).

A majority — 86% — were also able to accurately affirm that their Social Security benefits may be reduced if they collect their monthly checks before full retirement age and continue to work.

Curious to see how well you would do on the quiz? Decide whether each statement below is true or false, then check your responses against the answer key below.

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Excited for Social Security's Largest Raise in a Decade? Maybe You Shouldn't Be | The Motley Fool

Motley Fool 04 July, 2021 - 11:03am

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.

Social Security benefits increase periodically due to Cost of Living Adjustments (COLAs). COLAs are built into the program to help ensure benefits don't lose buying power as prices rise. 

In 2022, retirees are on track to get a huge COLA -- the largest one since 2009. But while this sounds like good news, seniors may not necessarily end up financially better off with the bigger benefit check. 

While Social Security retirees may get a lot more money next year, the sad reality is that the benefits increase may not actually give them any more buying power. In fact, many seniors could actually end up in a much worse financial position next year.

To understand why that's the case, it's helpful to know how COLAs are calculated. The benefits increase doesn't just come out of thin air -- it's based on changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). 

The average CPI-W for the months of July, August, and September is compared to the average for these same months in the prior year to assess how large a COLA seniors are entitled to. 

While we don't have this data yet, the CPI increase over the past 12 months has come in around 5%. And unless things drastically change, current levels of inflation suggest seniors could be on track for around a 4% COLA in 2022.That's the highest since 2009, when seniors saw a 5.8% benefits increase. 

Unfortunately, the reason seniors are in for such a high raise is because prices have been rising in key areas including furnishings, automobiles, clothing, and airline tickets.

With the cost of goods and services going up, seniors will likely find their bigger benefits don't actually allow them to buy more than they currently can afford. Sadly, next year's high COLA may not even be sufficient to maintain current spending levels, much less increase spending despite the larger checks.

That's the case for two reasons. First, rising Medicare premiums could reduce the value of the COLA. And second, CPI-W is actually an inadequate measure of inflation that retirees experience because it underweights key expenses such as housing and healthcare.

CPI-W is such a poor reflection of seniors' spending habits that benefits have actually lost about 30% of buying power since 2000. And despite the likelihood of a large benefits increase, things could get worse in 2021 since the very expenses that are undercounted -- medical expenses and housing costs -- have both increased dramatically recently. 

As if that isn't bad enough, most seniors rely on Social Security and savings to help them cover routine costs. And the same inflationary pressure enabling retirees to earn a large COLA will also reduce the effective value of the money in their savings accounts. 

So while retirees may be excited about the prospect of getting a 4% Social Security raise next year, the conditions causing it very likely could leave them worse in the end.

The one bright spot, however, is that seniors who realize that a large raise isn't necessarily good news can start preparing now to cope with the effects of rampant inflation. That may mean making adjustments to your budget, or even looking for additional income sources such as part-time work. By preparing now, retirees can help protect their finances even if the largest COLA in a decade does little to shield them from the effects of inflation.

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The No. 1 Reason to Claim Social Security at Age 70 | The Motley Fool

The Motley Fool 04 July, 2021 - 04:18am

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're not required to file for Social Security at one specific age. Rather, there's a range of ages you can choose from.

The earliest you can sign up for benefits is 62, and if you go that route, you'll get your money sooner, but you'll also permanently slash your benefits in the process.

Meanwhile, if you hold off on filing for Social Security until full retirement age, or FRA, you'll get the exact monthly benefit you're entitled to based on your earnings history. FRA is either 66, 67, or 66 and a specific number of months, based on the year you were born.

There's no "final age" to claim Social Security -- you can delay your filing past FRA for as long as you'd like. For each year you delay beyond FRA, your benefits will increase by 8% until your 70th birthday. But there's no financial incentive to hold off on claiming past 70, so it's generally considered the latest age to sign up.

Most seniors don't wait until 70 to claim their benefits, but here's a very good reason why you should.

On its own, Social Security might not do the best job of sustaining you throughout retirement. Those benefits will generally replace about 40% of your former paycheck if you're an average earner, and most seniors need a much higher level of replacement income to live comfortably.

A healthy nest egg can easily help bridge that gap. But if you don't have a lot of savings coming into retirement, then it pays to look at delaying your filing as long as possible so you can lock in a higher monthly benefit for life.

In fact, say you're entitled to a monthly benefit of $1,500 at age 67, and your retirement savings balance is such that it'll only provide an extra $5,000 a year in income. Assuming you don't have any other income sources to tap, that means you're looking at $23,000 a year to spend during retirement, which isn't a whole lot.

But if you delay your Social Security filing for three years, you'll boost your monthly benefit to $1,860. That means that combined with distributions from your savings plan, you'll have an annual income of $27,320 instead.

Furthermore, even if you try to withdraw conservatively from your savings, that money could eventually run out, especially if your investments end up doing poorly. But Social Security is set up to pay you for life, so the higher a monthly benefit you lock in, the more you'll collect throughout retirement -- no matter how long it lasts.

Claiming Social Security at 70 is a great way to make up for a savings balance you're not happy with. And while going that route could require you to put in some extra time in the workforce and delay your retirement, it's a sacrifice worth making given the added financial security it'll buy you for the rest of your life.

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‘I can’t live on $709 a month’: Americans on social security push for its expansion

The Guardian 04 July, 2021 - 04:00am

“I can’t live on $709 a month, so I have to work. I have no choice, even though my body says you can’t do much more,” said Reynolds.

She explained her benefits are lower due to years where an abusive husband didn’t allow her to work, and she had also taken time off to care for her father before he died. Reynolds relies on Medicare insurance, though she still has to pay co-pays for doctor visits, and receives only $19 a month in food stamp assistance.

Reynolds is one of millions of Americans who are either senior, disabled or survivors of a deceased worker, and rely on social security benefits for the majority of their income, but the average benefit of just over $1,500 a month doesn’t provide enough income to cover basic necessities.

“The government is failing all of us seniors. We have to choose whether we eat or we go to the doctor, do we eat or do we buy medicine? The struggle is out there even though I’m working,” added Reynolds. “I’m wondering how long am I going to have my home, how long am I going to be able to pay for it? Should I buy a tent now and store it, because if I lose my job, I’ll be homeless because no one wants to hire a 74-year-old.”

Approximately 65 million Americans receive a monthly social security benefit, with the majority of payments going to retired workers and their dependents.

Senior citizens and disabled Americans who rely on benefits for the majority of their income are pushing for expansion of social security. Calls for reforms include increasing benefits in line with the cost of living, as employers are providing fewer retirement pensions to workers and the US population at retirement age of 65 is expected to grow from 56 million to 78 million in 2035.

“The nation is really facing a retirement income crisis, where too many people aren’t going to be able to retire and maintain savings to live on,” said Nancy Altman, president of Social Security Works, an advocacy organization for expanding the program. “It’s a very strong system, but its benefits are extremely low by virtually any way you measure them.”

Altman argued an expansion of the program is long overdue, noting that payouts haven’t increased since 1972.

Public opinion polls on social security demonstrate there is strong bipartisan support for the system and opposition to cuts. Congressman John Larson of Connecticut introduced a bill last legislative session to expand social security, along with 209 co-sponsors, and Altman expressed optimism social security legislation could move forward after the Biden administration finalizes the bipartisan infrastructure deal.

Currently, social security benefits in the US are lower than in the majority of developed nations, compared with the percentage of earnings the benefits provide to the average worker. The benefits are also taxed and Medicare costs are deducted as well.

Susan Aubrey Wilde, 74, of Sacramento, California, lives alone in an apartment for seniors on fixed incomes, but her social security benefits of $1,122 a month barely covers little more than her rent of $794. After paying for utilities, internet, phone and the costs to upkeep and insure her car, there is little left to survive. She’s concerned that she won’t be able to afford to stay in her apartment amid rising rents.

Wilde has dental issues, but cannot afford recommended treatment, and she struggles to carry heavy loads up the two flights of stairs to her apartment. Her washing machine is currently broken and she can’t afford to fix or replace it. In 2004, she was diagnosed with breast cancer and still experiences ongoing issues from treatment. She also suffers from chronic obstructive pulmonary disease.

“I keep a tent by the door because if the rent goes any higher, I may soon be in the street. So much for retiring with dignity,” said Wilde. “I worked all my life until the cancer diagnosis. I raised two children alone on clerical wages and I did my best.”

Nearly 10 million disabled Americans and their dependents rely on social security benefits for their income. The majority of applicants for social security disability benefits are denied, with only 20-25% of applicants awarded benefits from their initial claims.

It took one year for Rocky Giammatteo, 49, of Las Vegas, to receive her disability benefits for multiple sclerosis in 2016.

“I had lost my life savings and was evicted before they finally reached a decision a year later,” said Giammateo. “If it hadn’t been for friends pitching in to help me out those last couple of months, so I could stay in a dive hotel and avoid being homeless, in Vegas’ 110-degree weather, with my poor health, I would’ve been dead.”

After she was awarded benefits and backpay, Giammateo decided to move to Mexico, where the cost of living is much lower than in the US. The benefits she receives barely covered her rent in Las Vegas.

“Moving abroad to a country with a lower cost of living was my only realistic option to survive,” concluded Giammatteo. “I’m basically a medical refugee. It’s painful, but I’m alive to tell you this tale now, so it was the right decision.”

Salisbury firefighters struggle with Social Security benefits because of decades-old decision - Salisbury Post

Salisbury Post 03 July, 2021 - 11:11pm

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Published 12:11 am Sunday, July 4, 2021

SALISBURY — After a 27-year career with the Salisbury Fire Department, former Capt. Paul Rendleman expected to receive $1,300 a month in survivor benefits after the 2019 death of his wife, Jeanette.

Despite paying into Social Security from other jobs worked, those survivor benefits were reduced to $81 a month because he was a retired firefighter. Then in May, he had to pay it all back.

Like many retired individuals, Rendleman and his wife made plans to ensure the other was financially taken care of when either of them died. But he now questions whether he would have pursued a career as a firefighter if he knew the consequences of a decision decades before his tenure. He now wants younger firefighters who may not understand Social Security to learn what he’s experienced first-hand.

“I don’t know if I ever would’ve worked at the Salisbury Fire Department if I had known the impact of retirement after losing my wife,” Rendleman said. “I’m lucky I had another business that I had some money in, but a lot of these guys don’t have anything else.”

Some amendments to the Social Security program passed in the 1950s allowed states the option to provide Social Security coverage to public employees. Fire departments had the option to opt out if they had another retirement plan in place.

Salisbury was among those that opted out. As a result, Salisbury’s firefighters are the only employees in city government not subject to Social Security withholding despite being covered by the retirement plan through the Local Government Employees’ Retirement System.

“We’re paying the price for something those guys did back then,” Rendleman said. “And we’re stuck in a barrel with it.”

The Omnibus Budget Reconciliation Act of 1990 extended Social Security coverage to state or local government employees who weren’t covered by a retirement system. The National Association of State Retirement Administrators estimates approximately one-fourth of state and local government employees across the nation participate in a public retirement system in lieu of Social Security, which includes more than two-thirds of firefighters and other first responders.

But despite paying more than the full 40 quarters, or 10 years, required in the Social Security program from other jobs worked, Rendleman said he now only receives $135 from Social Security. He blames two federal provisions passed in 1983.

The Government Pension Offset and Windfall Elimination Provision both can penalize those receiving or expected to receive Social Security benefits. They have affected nearly one-third of educators and one-fifth of public employees, according to ssfairness.org, a website dedicated to repealing the provisions. The WEP is a penalty imposed on one’s Social Security benefit when that person begins to collect a pension from a public agency after not paying Social Security taxes during employment. The GPO can penalize those who apply for Social Security spousal or survivor benefits.

Rendleman says the provisions penalize those who worked two jobs, which is common among firefighters. While one job entitled them to Social Security benefits, the other didn’t require taxes to be paid for the program.

“I don’t think it’s right that I can’t get my Social Security back that I paid in,” Rendleman said. “At no time did anyone ever tell us we wouldn’t be able to get full spousal benefits. They call it ‘double-dipping,’ but I call it ‘double-paid.'”

Darrel Nichols is another retired Salisbury firefighter facing a similar challenge. Nichols worked with the Salisbury Fire Department from 1990 to 2014 before a spinal cord tumor put him out of work from the department and his farm. Like Rendleman, Nichols worked another job where he paid into Social Security. Today, he’s not eligible for any Social Security disability benefits beyond the 2.5 years of long-term disability provided by the city.

“I want (firefighters) to know that they’re going to miss out on a benefit that the vast majority of other who work receive,” Nichols said. “They’re one call away from a career-ending disability.”

City Manager Lane Bailey said an estimated 25% units of government in North Carolina are in “similar boats,” including the city of Charlotte. Like Salisbury, firefighters in Charlotte do not contribute to Social Security payroll taxes, which is 6.2% not including Medicare. Instead, the city is a plan sponsor and responsible for funding the Charlotte Firefighters’ Retirement System.

Rick Fesperman, a retired assistant chief who began his 30-year tenure with Salisbury Fire in 1974, said firefighters back then were accustomed to working 24 hours on and 24 hours off. But due to the small pay compared to many other jobs in the private sector, many firefighters weren’t keen on an additional chunk being taken from their paychecks.

“The financial benefit is more than what it would be to pay in each month,” Nichols said.

Fortunately, Fesperman said, he worked other jobs before joining the department and after his retirement nearly 16 years ago. But the nearly $200 received from Social Security from those other jobs is reduced to $66 once Medicare costs are taken out.

Repealing the GPO and WEP, Fesperman added, would allow those firefighters who have worked other jobs to draw more of their entitled benefits.

All three told the Post they have sent letters detailing these challenges to local, state and federal leaders. Ultimately, “it falls on deaf ears,” Fesperman said.

There have been multiple attempts to repeal the GPO and WEP at the federal level, with the most recent being the bipartisan House Resolution 82, or the “Social Security Fairness Act of 2021,” led by Rep. Rodney Davis, a Republican from Illinois. To date, more than 180 members of Congress have signed onto the legislation, including four Democrats from North Carolina. However, the bill has not advanced out of the House Ways and Means Committee after referral in January.

Bailey said the city of Salisbury and Fire Chief Bob Parnell have explored options to keep the Salisbury Fire Department’s benefits competitive. Among those options is the establishment of a fund Salisbury firefighters could choose to pay into and receive a match of the same rate from the city. Bailey said an option like this would allow firefighters to choose whether they want to pay into the fund or not.

Included in the 2021-22 budget, which began July 1, is an increase to all city employees’ 401K match from the city, raising the rate from 3% to 4%. Bailey said an additional and separate increase for firefighters has also been discussed as another option for more compensation. Currently, police officers receive a 5% 401K match.

The challenge, Bailey said, is reaching a super-majority among firefighters who want to opt back into the city’s Social Security program, especially among younger firefighters who may not count on the viability of Social Security decades from now or who don’t want the required 6.2% tax taken from their salary.

Additionally, at least 40 quarters of time, with each quarter representing three months, must be paid in. That length of time means it would take at least 10 years before any firefighter could benefit from the opt-in, Bailey said. So, opting back in wouldn’t benefit those who are close to retirement or those who already have retired.

With the city also providing a match when employees pay Social Security taxes, opting back in also impacts the city budget. Based on the salaries of 88 Salisbury firefighters, including the chief, that amounts to around $260,000, Bailey said.

KANNAPOLIS — Wanting to make sure everything was perfect, Dana Christner was waiting to hold an official grand opening for... read more

3 Ways to Squeeze an Extra $100 a Month From Social Security | The Motley Fool

The Motley Fool 03 July, 2021 - 11:03am

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.

The income that Social Security provides in retirement is crucial for a huge number of Americans. In many cases, Social Security is the only reliable source of income, while even for those fortunate enough to have pensions, savings, or side gigs to provide some extra cash, Social Security is still a key financial support.

The typical retired worker receives a bit over $1,550 per month in Social Security benefits. For someone becoming eligible for benefits in 2021 at age 62, it takes average earnings of about $70,000 a year -- indexed for inflation over a 30-year career -- to generate that monthly benefit. However, if you're still working and you'd like to boost your retirement benefit by $100 a month, there are three different ways you can make that happen. We'll go through all three.

The formula for determining your monthly Social Security benefit looks at the average earnings you've received over the course of your career. The higher the average, the larger the check, although the incremental amount of additional benefits gets smaller as your wages go up. For every additional dollar of average monthly wage up to $996, you get an extra $0.90 in your baseline benefit at full retirement age. However, for an extra dollar when your average wage is between $996 and $6,002, you only get $0.32, and a boost above the $6,002 mark results in just a $0.15 benefit increase.

To get $1,650 in monthly benefits, you'd need to have average earnings of about $76,000. That's works out to about a $500 boost to your monthly income in order to get the $100 bump to your monthly Social Security check that you want.

Social Security assumes that you work a 35-year career. If you have a shorter work history, it'll add in zeros to figure out your 35-year average monthly income.

By replacing some of those zeros with additional earnings, you can boost your average significantly. For instance, just by working and earning that same $70,000 salary for another two and a half years, you can boost your Social Security check by nearly $100 a month. Even if you can't get a job that pays as well, working a bit longer at lower wages can eventually get you to the same result.

Claiming early at age 62 results in getting smaller monthly checks than claiming at full retirement age. For those turning 62 in 2021, the reduction is nearly 30%. But each month that you wait means a smaller reduction from your regular full retirement age benefit.

In this case, by waiting until you're 62 and 11 months old, you can receive roughly $100 more. That means finding a way to do without Social Security for nearly a year, but your payments will be permanently higher for the rest of your life.

In practice, many people trying to plan for Social Security use a combination of these strategies to make their checks a little bigger. You might not be able to do all three, but knowing that earning more, working longer, and waiting before claiming benefits can all help boost the size of your Social Security payment is useful and can help you make the best choices possible with your benefits.

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Stock Advisor launched in February of 2002. Returns as of 07/05/2021.

Have You Done Enough to Avoid the Crisis in Retirement Planning? | The Motley Fool

The Motley Fool 03 July, 2021 - 06:08am

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.

Harvard Business Review (HBR) published a dire warning seven years ago. Most Americans don't know how to execute a retirement strategy that addresses the most prominent risk-income insecurity. With fewer people receiving guaranteed income from pension plans, we've been forced to rely on our own planning to take care of cash needs in retirement. How can you ensure that you don't run out of money in retirement and that you'll have enough income each month to pay all of your bills?

Despite talks of crisis in HBR, it's not all doom and gloom. You can develop an investment strategy to set yourself up for a successful retirement. Educate yourself, focus on creating predictable income, and address the most prominent risks. If you can put those key considerations together, you'll be on your way.

Pensions used to be commonplace for retirees. Monthly income wasn't a concern for most households, which enjoyed guaranteed paychecks from pensions and Social Security for life. This income security is changing rapidly as fewer private employers offer pensions.

About one-quarter of full-time workers participate in a defined pension benefit plan, but that number is much higher for government employees. Only 11% of private-sector workers currently participate in pension plans, down from 35% in the 1990s. This was a necessary shift to keep many businesses out of bankruptcy, but it means that the burden of creating stable retirement income was shifted to households.

Retirement accounts such as 401(k)s or IRAs have become more popular, and they're wonderful vehicles for asset building. However, the shift resulted in two major shortcomings. First, people generally don't know exactly how much they need to save up to retire (and most people are falling short of the actual number). Second, a 401(k) can't guarantee predictable income flows when income earners finally stop working.

Rock-solid retirement plans are focused on creating stable income streams that are high enough to meet basic expense needs and lifestyle expectations. You need to ensure that you'll have enough retirement cash flow to live comfortably. Oddly, income planning generally takes a back seat to return on investment when people talk about retirement accounts.

A few factors are driving the focus on return on investment. First, it's important to achieve strong returns on your retirement assets throughout your working career. It's great to get the most out of your savings, so you'd obviously want to maximize the gains possible within your risk tolerance.

Investment professionals and the media also play a meaningful role. Financial advisors and asset managers are often assessed on the returns delivered by their allocation strategies. Risk management takes a back seat, and income planning isn't even an afterthought in many cases. You almost never hear about income planning in major financial media outlets. It's kind of boring and far less intuitive, and it isn't particularly interesting to viewers or readers until they are approaching retirement.

The media and advisors shouldn't be demonized for this. They're responding to consumer expectations, after all. Still, it's clear how this can cause problems when people suddenly have to grapple with an unfamiliar planning requirement at a pivotal time.

Social Security is an important part of the retirement income puzzle, but it can't be the only one. Average Social Security benefits are well below median income for most households. In fact, Social Security for most people is only modestly higher than the federal poverty line.

Despite this glaring deficit, today's seniors are too heavily reliant upon Social Security. It's the only source of income for 40% of retirees, and it's the largest source of income for more than 90%. Given the potential for government retirement benefits to shrink in 20 to 30 years as the system might struggle to self-sustain, that could grow into a real problem for people who aren't creating income elsewhere.

You can't solve the issue overnight, but there are a handful of steps you can take to protect yourself.

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Stock Advisor launched in February of 2002. Returns as of 07/05/2021.

Here's How to Squeeze an Extra 24% Out of Social Security | The Motley Fool

The Motley Fool 03 July, 2021 - 04:36am

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.

The more money you collect from Social Security during retirement, the more financial freedom you'll have. Unlike your retirement savings, which could, unfortunately, get depleted in your lifetime, Social Security is designed to pay you a monthly benefit for life, so the higher a benefit you lock in, the more money you'll get on a long-term basis.

Your Social Security benefit itself is based on the amount of money you earn during your 35 most-profitable years in the labor force. But if you make one simple move, you can actually boost your benefit by a very impressive 24%.

You're entitled to your full monthly Social Security benefit based on your earnings history once you reach full retirement age, or FRA, which is based on your year of birth, as follows:

However, you don't have to claim benefits precisely at your FRA. You're actually allowed to sign up for Social Security beginning at age 62, but for each month you file before FRA, your benefit gets reduced on a permanent basis.

On the other hand, if you delay your filing past FRA, your benefit will increase by two-thirds of 1% for each month you hold off. This means that your benefit will increase by 8% for each year you delay your filing.

Once you turn 70, your Social Security benefit can't grow anymore, so you might as well claim it at that point. But if your FRA is 67 and you delay your filing all the way until age 70, you'll boost your benefit by a very generous 24% -- for life.

So, say you're entitled to a monthly benefit of $1,500. Delaying your filing one year will grow that benefit to $1,620. Waiting two years will leave you with $1,740 a month. And holding off as long as possible -- three years -- will give you a benefit of $1,860. That translates into $4,320 a year of additional income, which could go a long way toward paying for things like healthcare expenses, home maintenance, and travel.

In some cases, holding off on claiming Social Security can be difficult, such as if you're unable to continue holding down a job or you need extra money to cover surprise expenses. And if you don't expect to live a long life, then delaying your filing isn't smart, because while it raises your monthly benefit, it could also leave you with a lower lifetime benefit.

But if you expect to at least live an average life span and you don't have a pressing need for money, then delaying your filing could boost your Social Security benefit by a cool 24%. And so, if you have the ability and patience to hold off, you'll clearly be rewarded quite nicely.

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 07/05/2021.

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