Social Security is a safety net many hardworking Americans depend on when they get ready to retire, but just as the baby boomer generation is reaching that stage, experts are expressing concern they could be in for a surprise.
Roger Roemmich, chief investment officer of ROKA Wealth Strategies, whose new book is Don’t Eat Dog Food When You're Old, is one of them.
"I think Social Security will survive, but I believe they will have to change the system," he told ThinkAdvisor's sister site BenefitsPro. "Social Security and Medicare are currently taking over 40% of the federal budget. How radically they change it depends on several variables."
"The most obvious thing to do would be to increase the age at which people can draw Social Security. Following a historic pattern, it will be a plan that takes 10 years to be fully in place, but the age will be arbitrary. Congress will arbitrarily pick an age. And if you are less than a certain age, the rules may not apply, and if you are above it, they will."
Roemmich said that most Americans who retire early and begin taking Social Security at age 62 are unemployed or underemployed. Those with higher incomes should not do anything until they reach full retirement at age 66, he advised.
That's because each year someone delays Social Security between 62 and the maximum retirement age of 70, the benefit amount goes up 6% to 8% a year and grows with inflation from that point forward.
As for what change Roemmich believes is most likely to occur, he said he thinks Congress could raise the full retirement age from 66 to 70.
"If 70 is the new normal, there goes an extra 32% by waiting to draw benefits," he explained. "Will there be deferral beyond 70? Nobody knows."
Until such time as the rules do change, Roemmich advises married couples with income to stagger the ages at which they draw full benefits.
One of them should begin at 66 and the other should use the ability to draw half of their spouse's Social Security payment while delaying their own account to grow until age 70.
"Somebody who would have gotten $1,600 a month would get another third, so they would get more than $2,100 a month, which makes a huge difference," he said.
His advice for single retirees with an income is much the same. "In the old days, when you could draw 8% on a CD, the advice was to put it in the bank. But with low interest rates today, even singles should view Social Security as a last resort to get cash flow because growth is so good and it's guaranteed," he said.
"Unless you think the U.S. government is risky, and if that's the case, we're all in trouble," Roemmich added.
That is precisely what Michael Wall, President and Founding Principal of Wall Financial Group and Retire Well LLC, thinks.
"Most of the time I encourage clients to take it as soon as they can. Honestly, it's not because of the math, it's because I don’t' trust the government. If nothing changes, by 2020 Social Security is depleted," he told Benefitspro.com.
"With Obamacare and other programs, the deficit, raising the debt ceiling, we have to borrow more money and the cost of money goes up. It will have an effect on everything including Social Security. For clients 66 and up now, they will be OK, but not those younger than that.
"The government does not do a good job of managing our money. They have not in the past, so how can we assume they will in the future. The government will do whatever they can to ram policies through and people are secondary."
Wall said that if a client has money in a 401(k) and says they don’t need Social Security and can wait, he advises them to take it anyway and look at it as free money.
"They can use that money to pay for taxes for converting an IRA. So they are using it to enhance their own portfolio even though they don’t need it as income."
"For example, if a client has $400,000 in an IRA and they have a pension and they don’t need money, they say they don't need Social Security and they will push it until full age and get more," explained.
"My view is that if they don't wait they get money each year. So I say let's assume you take It now, let's say $20,000 a year. The question is how long it takes you to make up that $80,000 if you don't take it for four years. So I say take it, and use this as tax money in years you don’t need it and put it into a Roth and make your own money tax free."
Wall acknowledged that most people want to figure out ways to maximize their Social Security benefits, but insists that is also a short-term view.
"If you take a broader approach and look at IRAs and what would happen if we used Social Security to pay taxes while we converted IRAs to Roths, if you look at what would happen over two generations, it's unbelievable. I certainly think so. "
Not all experts are quite as pessimistic about the prospects for the Social Security safety net.
"Everybody thinks the government will go out of business. That's not the case. The checks will always continue," said Pete Lang, president of Lang Capital in Hilton Head and Charlotte, N.C..
"If the government gets into trouble with inflation, that's another issue. But the checks will be there."
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