360° Coverage : Social Security At Age 62? Why Delaying Your Benefits May Not...

1 Updates

Social Security At Age 62? Why Delaying Your Benefits May Not Pay Off

Apr 23 2014, 11:18am CDT | by

The following is a guest post by Scott T. Hanson, CFP, a financial advisor with Hanson McClain Advisors in Sacramento, Calif.  What if I told you to start take your social security benefits as early...

Filed under: news

 
 
 

18 weeks ago

Social Security At Age 62? Why Delaying Your Benefits May Not Pay Off

Apr 23 2014, 11:18am CDT | by

The following is a guest post by Scott T. Hanson, CFP, a financial advisor with Hanson McClain Advisors in Sacramento, Calif. 

What if I told you to start take your social security benefits as early as possible? That advice goes against conventional wisdom, but it may be a good idea for some retirees.

There’s not a week that goes by where I don’t see a story about how it pays to delay initiating benefits. While it may be beneficial for many folks to wait until age 66 or even age 70, null

As a financial advisor, a key part of my job is to evaluate risks and probabilities, and to then recommend strategies to reduce these risks as much as possible. We use financial calculators, build algorithms and create large spreadsheets in order to paint some sort of picture of the future. But our outcomes are only as good as the assumptions that we use in building our models.

One of the major, and most overlooked assumptions in determining when to start Social Security benefits is the likelihood that Congress may change the benefits in the future. After all, a retiree will only receive benefits as long as the government provides those benefits.

I am not implying that I believe Congress will cut Social Security benefits to retirees in the near future, but it is certainly within the realm of probabilities that there will be some sort of “means testing” in the future. And if you think I’m nuts for even suggesting this, consider the following:

Social Security payments were tax-free for many years. A worker paid into the Social Security system through payroll deductions, the employer matched those payments and the worker received the benefits tax-free during retirement. It would seem unreasonable to be taxed on the retirement payments since there was no tax-deduction provided to the worker for the contributions made.

Congress took an unfortunate step in reducing benefits to” wealthier” retirees with the passage of the 1983 Amendment to the Social Security Act. This law effectively reduced Social Security payments for higher income retirees by taxing up to 50% of the benefits for those who had provisional income of $25,000 ($32,000 for married tax filers). Essentially, the government was providing benefits with one hand while taking them away with the other.

Things got worse in 1993 when Congress passed the Omnibus Budget Reconciliation Act, which increased the percentage of benefits that would be included in taxable income. The law caused up to 85% of benefits to be taxable for those with provisional incomes of greater than $34,000 ($44,000 for married).

These higher taxes did not impact a large portion of Americans: mainly, those who were retired with low income and were relying upon Social Security benefits. But for those who had higher incomes during retirement, the taxes definitely had an impact. A retiree today in the top Federal income tax bracket of 39.6% will see an effective reduction in benefits of 33.66% (85% of 39.6%).  That’s a one-third reduction in benefits.

And it gets still worse. Higher income retirees pay surcharges for Medicare Part B and Part D. There once was a time when all Medicare recipients paid the same, but the surcharges now apply to “higher income” retirees.

So what does the future hold? It is anyone’s guess, but considering that Social Security and Medicare are growing much faster than tax receipts, something has got to give. Perhaps the shortfall will be made up entirely by taxing the younger workers. This is possible.  But it’s also quite probable that this shortfall will be made up by some sort of means testing for the higher income retirees.

A means testing for Social Security could be an increase in income taxes, a reduction in benefits, a sur-tax, or some other method.  Who knows what Congress could dream up?

Obviously, I cannot predict what our elected leaders may do 10 or 20 years from now any more than I can predict where the stock market is headed this year. I wish I could.  I can, however, emphatically state that there is at least some possibility that Social Security payments will be needs based in the future.

Because I don’t know what the future holds, here is my rule of thumb: For those who will need Social Security benefits during retirement—those who will be relying upon the income to meet their monthly needs—I recommend you defer the commencement of benefits for as long as possible, perhaps even until age 70. You’ll have a much larger check each month and, given the fact that you’ll need the money, you won’t be an easy target for Congress to slash benefits in the future.

For those who reach retirement age financially set, either through hard work, disciplined savings, luck, or a combination of all three, consider taking the money as soon as you can get it. The financial calculators may tell you otherwise, but those calculators fail to calculate the risk that benefits may be different in the future./>/>

If a person were to analyze the value of an income stream from a private entity, one would surely take into account the probability of either outright default or some sort of reduction in receipts. It makes only logical sense to analyze Social Security the same way. Any financial analyst worth their wage in salt would certainly take into account the possible reduction in future benefits.
/>

 
Update
1

12 hours ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of the double tragedies of MH370 and MH17" hits ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Drug shows first potential treatment for common anaemia
Washington, Aug 29 (IANS) An experimental drug designed to help regulate the blood's iron supply shows promise as a viable first treatment for anaemia of inflammation.
 
 
Shape-shifting cells behind stripes of zebrafish
London, Aug 29 (IANS) Researchers, including Indian-origin scientists, have discovered how the three major pigment cell types - black, reflective silvery, and yellow cells - arise and behave to form the 'zebra' pattern in zebrafish, a small fresh water fish.
 
 
Beware! Married couple share most bacteria
Washington, Aug 29 (IANS) Know where do bacteria reign? In the cosiness of your home - at doorknobs, light switches, floors, countertops - and within relationships.
 
 
Junk blood tests may reveal resistant skin bacteria
Washington, Aug 29 (IANS) Instead of trashing contaminated positive blood samples in hospitals, these can be used for studying the presence of skin germs, a study suggests.
 
 
 

Latest from the Network

Jessica Chastain demands a female superhero movie
Jessica Chastain wants to see the release of a female superhero movie. The acclaimed actress, who starred in the 2013 horror film 'Mama', says Marvel Studios should make a movie in which Scarlett Johansson and her Black...
Read more on Movie Balla
 
New characters to join 'Avengers'
New characters are set to join the 'Avengers'. According to Badass Digest, the latest movie in the franchise 'Avengers: Age Of Ultron' will finish with Captain America creating a new team of superheroes by combining the...
Read more on Movie Balla
 
David Brent movie is almost a musical, says Ricky Gervais
Ricky Gervais says the new David Brent movie is ''almost a musical''. The comedian has given fans of the TV character a preview of what they can expect from the much-hyped film, revealing that it'll take the shape of...
Read more on Movie Balla
 
Joaquin Phoenix in 'final talks' for Doctor Strange
Joaquin Phoenix is reportedly in final talks to play Doctor Strange in a new Marvel movie. The Academy Award nominated actor is rumoured to be the top choice for the superhero role in the latest Marvel blockbuster,...
Read more on Movie Balla
 
Drug shows first potential treatment for common anaemia
Washington, Aug 29 (IANS) An experimental drug designed to help regulate the blood's iron supply shows promise as a viable first treatment for anaemia of inflammation. The present treatment strategy for anaemia of...
Read more on Apple Balla
 
Shape-shifting cells behind stripes of zebrafish
London, Aug 29 (IANS) Researchers, including Indian-origin scientists, have discovered how the three major pigment cell types - black, reflective silvery, and yellow cells - arise and behave to form the 'zebra' pattern...
Read more on Apple Balla
 
Beware! Married couple share most bacteria
Washington, Aug 29 (IANS) Know where do bacteria reign? In the cosiness of your home - at doorknobs, light switches, floors, countertops - and within relationships. If you are married and have kids, you tend to share...
Read more on Business Balla
 
Junk blood tests may reveal resistant skin bacteria
Washington, Aug 29 (IANS) Instead of trashing contaminated positive blood samples in hospitals, these can be used for studying the presence of skin germs, a study suggests. According to researchers from Tel Aviv...
Read more on Apple Balla
 
New method to diagnose malaria faster
London, Aug 29 (IANS) Finnish researchers have claimed to develop a new system for diagnosing malaria infection faster. The method is based on computer vision algorithms similar to those used in facial recognition...
Read more on Apple Balla
 
'Thank you' turns new acquaintance into friends
Melbourne, Aug 29 (IANS) Expressing gratitude is not just a good habit, it may help you win friends too. Thanking a new acquaintance for their help makes them more likely to seek an ongoing social relationship with...
Read more on Apple Balla