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In the days of black and white televisions, when the remote control was one of your children, Jack Webb created and starred in a series called Dragnet. He played Joe Friday, a detective sergeant on the Los Angeles police squad.
At the beginning of each show the narrator would start off with, “Ladies and gentlemen the story you are about to hear is true, only the names have been changed to protect the innocent.”
No one who has ever seen an episode would ever accuse any of the actors of over playing their roles or being off of their ADHD meds. No hype, no long drawn out fights, they were stories about finding the truth (a.k.a the facts).
Apply that searching for truth to the Old-Age, Survivors and Disability Insurance Program or as you and I know it, Social Security. You see there’s this disconnect from the truth that seems to have invaded the public’s mindset about Social Security where opinions outweigh the facts.
Let’s start with some historical facts:
-The program was enacted in 1935 by the FDR administration and Congress.
-The first benefit paid was to a gentleman who received a lump sum payment (this was the only form the benefit was paid during the startup period from January 1937 through December 1939) of seventeen cents.
-Ida May Fuller was the first recipient of a monthly check.
-Originally the first three digits in your Social Security number represented the geographical region where you lived at the time you applied. As of 2011 a randomized system has been put in place. Over four hundred and fifty million numbers have been issued with over $11 trillion in benefits paid.
These are some interesting facts, but what do we as individuals need to know?
Dum dee dum dum
This is the city,
I work here
I’m a financial advisor
It was Tuesday February 3rd, it was cold, I was working the investment desk when my boss handed me the case of Stan and Margaret.
Both will see their 62nd birthday early this year and they are fully employed. Stan’s income annually is $70,000 and Margaret’s is $55,000, they both plan to continue working until they reach FRA (Full Retirement Age) which for them is 66 years and two months. Stan and Margaret have been married for 39 years, raised a family, have been active in their church and community all of their lives. They have been good stewards of their incomes and have consistently saved for their retirement through their employer provided plans. Saving has been their focus, not planning. Sound familiar?
A Saturday morning ritual was is to meet with friends at a local restaurant to discuss the week’s events and solve the world’s problems. One of their friends in the group just retired early and is remarking how wonderful it is to not be on the clock. He related his story about the ease of which he signed up for Social Security over the phone. He advised everyone there to sign up as soon as they could because everyone their age needs to get their benefit before the system runs out of money.
Fact: The Social Security Administration has projected that if changes are not made to the system by 2033 there will only be enough funds to provide all Social Security recipients with 77% of their benefits.
One such change was approved in the budget bill in December of 2015. This change put an end to the strategy known as “File and Suspend” by April 30, 2016. This one act alone will reportedly save $9 billion per year.
On the drive home Stan and Margaret discuss Social Security, Stan comments they have worked hard, paid their taxes and deserve to receive their fair share of benefits. The following week they both call and request that their benefit from Social Security begin.
“An emotional decision without intellectual contemplation usually leads to a less than desirably outcome.”
Fact: Social Security statements project what your monthly benefit known as your PIA (Primary Insurance Amount) will be when you attain FRA. When you file early your benefit is reduced based on the number of months you received the benefit before you reached full retirement age (FRA).
Stan’s PIA is $2,400, taking his benefit at 62 it will be reduced to $1,800. Margaret’s PIA is $1,800 and hers will be reduced to $1,350, a loss of $1,050 per month of income on this rule along. Some individuals have to make this kind of sacrifice to live; others who rely on opinions instead of facts and sound planning will have less than optimal results.
Fact: When claiming Social Security early and earning W-2 income there are limits on how much income you can make and not have your Social Security affected/decreased. This year the income limit has been raised to $16,920. The rule is $1 will be withheld for every $2 dollars earned above the $16,920 limit.
Ouch! Stan & Margaret’s desire to work until they reach 66 will dramatically reduce the actual benefits they will receive. We would hope that when they made the call to Social Security someone would have asked them this question, “Will you have earned income?”
Many individuals know and understand some of these basic rules but, there are literally thousands of them in the program that can affect your benefits.
Anyone who knows about the show Dragnet, associates the character Joe Friday with the phrase “Just the facts Ma’am”, but the truth is that character never said that specific line. Over the years parodies of the show created it. Yet we take it as fact.
Saving alone is not a plan. Taking the advice of others who don’t know your specific situation, or acting out of fear is not a plan. Taxes, all types of income, fixed and social expenses must be carefully considered when planning for your retirement. Your future must be guided by more than just opinion, hearsay and rumor. You need and deserve to have knowledgeable and professional individuals who have your best interest placed first in all investment and financial decisions that WILL affect your future.
Let the FACTS guide you.
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column offset=”vc_hidden-lg vc_hidden-md vc_hidden-sm”][vc_widget_sidebar sidebar_id=”sidebar-main”][/vc_column][/vc_row]