Social Security and Retirement Benefits

Ok. I’m not ready to start thinking about Social Security just yet, but my parents are. So I attended an education seminar put on by my financial advisers which included a presentation by Tom Clark from the Social Security Administration.

The following are the Cliff Notes from Tom’s very informative lecture.

Tom’s opening statement was that Social Security is more than a retirement benefit program. In fact, he argued that retirement benefits were the least important part of the program.

Disability Benefits
Social Security also provides disability and death benefits. 40% of men and 28% of women will either die or become disabled before they reach retirement aid. That’s 1 in 3 workers who are on Social Security. In the Dallas metro area alone, there are 30,000 children receiving Social Security because their parents died.

• You are 500% more likely to become disabled than to die before retirement age. On top of that if you become disabled your costs go up because you have to deal with mobility, medical and other issues.
• Be warned though, If you don’t pay into Social Security for 5 out of 10 years you lose disability payments. So, if you retire at age 50 and are later disabled at age 56 there won’t be any payments coming your way.

Medicare Benefits
Medicare is the Social Security component which is designed to take care of medical costs for senior citizens. Medicare has four parts, Part A, B, C & D. Medicare’s health insurance kicks in at age 65. If you receive Social Security for two years you also get Medicare.

• Part A is the hospital portion of insurance. There is no cost to Part A coverage, and it cannot be turned down. It pays only the hospital bill in the hospital. Doctor bills and all other items are not covered by part A.
• Part B has a cost. This year is $88.50 per month. DO NOT TURN THIS DOWN even though you can. Even if you have work insurance coverage the policies are written in such a way that they will only be secondary insurance to Medicare.
• Part C is optional insurance which offers managed care, PPO and other plans including Medigap coverage.
• Part D is the prescription drug coverage part of the program. It also has a cost component.

Retirement Benefits
The first thing to do is go to the Social Security web site and use the calculator to determine what your benefit payments will be.

• You can begin accepting benefit payments as early as age 62, but at a fairly aggressively reduced rate (roughly .5% per month). If you decide to begin taking benefits at age 62 vs. 65 it would take 13 years to break even on total retirement payouts.
• If you are willing and able to wait until, or after, full retirement age you become eligible for greater monthly payments including Delayed Retirement Credits. For each month over retirement age (up to age 70) that you don’t take it you get your amounts increased by 7% annually.
• If a spouse dies the other spouse begins receiving 100% of the higher of the two spouses Social Security check amounts.

When using the Social Security Calculator, make sure and pay attention to the Break Even Age analysis. This is probably the most important factor to consider when deciding when to begin collecting benefits. Here is a sample chart to illustrate the payback on the Break Even analysis:

In other words, you’ll need to live past age 76 in order to break even if you wait to collect benefits at age 66 instead of 62. In the sample scenario I ran, assuming you lived past age 76 your monthly checks would be a full 39% higher by waiting till age 66 to collect. By waiting till age 70, the monthly checks are 91% greater.

I guess the bottom line is that each person has to weigh their current needs against a bet as to how much longer they are going to live. If you really need the money now, or you don’t think you’ll live much beyond 76, then take the cash now. But if your parents lived into their 90’s and you aren’t hurting for extra money at age 62, you’ll be rewarded with much greater earnings the longer you delay your gratification up to age 70.

I recommend that you call the Social Security Administration and ask them to send you SSA Publication No. 05-10024 entitled “Understanding The Benefits”. You can reach them at 800-772-1213.

Good luck.