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General Social Security

Why Means Testing Social Security May Be The Most Obvious Fix

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means testing social security

Worries and rumors and complaints about a broken system on the verge of collapsing have been the norm when it comes to talking about Social Security since as far back as the 1980s — and that shows no signs of slowing down today.

With current projections showing the Administration’s trust funds run out in 2035, it makes sense that people are still concerned and clamoring for a solution. Wouldn’t it be nice if we could just fix Social Security once and for all?

It sure would be — and it might be easier than most people currently think. In fact, I believe there is a solution to fix Social Security. Not only would it repair a broken system, but it wouldn’t even require extensive legislation and the infrastructure is already in place to start administering this today.

Sound too good to be true? Keep reading and I’ll give you all the details on the most obvious fix for Social Security’s current woes.

We CAN Avoiding Cutting Social Security Benefits

It’s no secret that Social Security is facing financial challenges ahead. Again, we know that within the next 15 or so years, there will not be enough money coming in to pay out benefits.

Something has to change, and fast, or we can expect benefits to be cut by around 25% across the board. Maybe that’s not a big deal for some people… but for many others, losing a full quarter of your benefit payment could be devastating.

This would be a good place to pause before I share my solution, and give a quick warning to politicians who would like to stay in office:

There are nearly 50 million individuals in the United States over the age of 65. 25 million households get half of their family income from Social Security. More than 12 million get 90% of their income from Social Security.

That’s a lot of people — and this many people can easily swing election outcomes one way or another. Since 1900, the average popular vote difference between the winner and loser of a presidential election has been 5.8 million votes.

Clearly, there are more than enough voters here — voters who have the majority of their income at stake — to easily swing an election to the side of someone who can fix this system before benefit cuts happen.

My idea would not be difficult for politicians or the government to implement, because the systems are already in place to put this plan into action. So what is this great fix?

It’s very simple: it’s an extension of the Social Security earnings limit to all ages.

Here’s how it would work.

Extending the Social Security Earnings Limit to All Ages Could Fix the System

Under the current rules, if you’re younger than the full retirement age then you can only make a certain amount of income before your benefits are withheld. If you make over a certain amount in income, you don’t get benefits at all.

But once you reach full retirement age, there is no limit on the amount of earnings you can have outside of your Social Security benefit.

My fix would simply extend this current rule around the earnings limit to apply that limit to all ages. If your earnings exceed a certain amount — which would mean you don’t actually need Social Security in order to get by or afford your lifestyle — you would not be eligible to receive benefits.

This would actually realign the system with the original guidelines. It would also free up funds to go to those who truly rely on their Social Security benefits to survive in retirement and have little or no other sources of income to use.

Shouldn’t Social Security Go to Those Who Need It Most?

When Social Security first began, the earnings limit applied to all ages. In 1950, the earnings limit was eliminated at age 75.

In 1954, this was changed to age 72. Another change happened in 1983 when the age was dropped to 70. Finally, in 2000, the rules changed for a final time to make the earnings limit drop off at your full retirement age.

I’m certainly not the first to suggest this specific fix to Social Security — although my simplified method of extending the earnings limit may be new.

On the campaign trail in 2015, now-President Donald Trump said, “I would be willing to say I will not get Social Security. But the fact is that there are people that truly don’t need it, and there are many people that do need it very, very badly.”

In the same campaign season, then-Governor Chris Christie said, “We need to save this program for people who have paid into the system and need it. This government doesn’t need more money to make Social Security solvent. We need to be not paying benefits to people who don’t really need it.”

A Word on Fixing Social Security with Means Testing

Although a means test has been suggested before, I haven’t seen the research on the impact of such a change.  One of my big questions about this is, where would the earnings limit be set under this solution?

Ultimately, there is an earnings amount where cutting benefits to individuals above the line would completely fix the system. Is that number $15,000 in income? $25,000? Who knows?

To my knowledge this topic hasn’t been researched enough to have a complete answer, which is where the means test seems most problematic to me. It’s a big puzzle piece that’s missing and really needs to be known before this proposal can get serious.

I know some people will say that even my proposed solution of making the earnings limit something that applies to everyone regardless of age is a form of means testing — and that it unfairly punishes success.

As much as I agree with that, the entire Social Security system is already built on means testing. My fix doesn’t present a huge change due to the progressive Social Security benefits formula.

Under that formula, lower-earning individuals receive a benefit that is a higher replacement of pre-retirement earnings than higher earning individuals. And once benefits begin to be paid, lower earning individuals usually don’t have to pay any taxes while those with higher incomes have to give some of it back through taxes.

Adding a “means test” like the earnings limit applying to all ages wouldn’t really represent a monumental policy shift. 

The fact is, any solution we can use now will likely impact anyone under 50 with a higher than average income. Even I don’t love my solution, as it impacts me, too!

This is probably something we need to get used to — and I think a solution like the earnings limit applying to everyone is preferable to a convoluted fix that only fixes part of the problem through half measures and complex law. Let’s keep it simple so we can rip the bandaid off and get it over with!

As this and other policies develop, I’ll be here to give you the details.

Questions?
If you still have questions, you could leave a comment below, but what may be an even greater help is to join my FREE Facebook members group. It’s very active and has some really smart people who love to answer any questions you may have about Social Security. From time to time I’ll even drop in to add my thoughts, too. Also…if you haven’t already, you should join the 100,000+ subscribers on my YouTube channel!

One last thing, be sure to get your FREE copy of my Social Security Cheat Sheet. This is where I took the most important rules and things to know from the 100,000 page Social Security website and condensed it down to just ONE PAGE! Get your FREE copy here.

The SSA Is Watching Your Social Media Accounts

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government watching your social media accounts

The government really is watching you. Or at least, the Social Security Administration is watching your social media accounts.

It might sound like the plot of a movie, or the latest conspiracy theory about Big Brother out to get you. But it’s true: the Social Security Administration (SSA) wants to increase its monitoring of social media accounts.

This isn’t a future threat. It’s happening now. The SSA already monitors social media posts from individuals who are on disability. The purpose is to help identify and investigate fraudulent disability claims, but what may change is when they begin monitoring.

Why the Social Security Administration May Increase Its Social Media Surveillance

The SSA wants to start using social media activity not just to catch or track potential cases of fraud. They want to use social media content as part of the evaluation of a disability application.

If you file for disability, the Social Security Administration could start checking out your Facebook, Instagram, and other social networking profiles to make sure you aren’t behaving in a manner inconsistent with your disability.

For example, if you file a disability claim for degenerative disc disease, the SSA could potentially  check out your social media posts to verify that you aren’t participating in activities that would be inconsistent for someone with chronic back pain.

Here’s what you need to know about this potential ability of the SSA to keep an eye on you online.

With Financial Challenges Ahead for Social Security, Expect Crackdowns

The SSA’s Fiscal Year 2020 Budget Overview addresses the potential for increased social media surveillance. The document includes this line explaining what the administration may roll out in the near future:

“We are evaluating how social media could be used by disability adjudicators in assessing the consistency and supportability of evidence in a claimant’s case file.“

social security disability and social media post

It’s no surprise that the Social Security Administration has turned to this. Since 1970, there has been a 460% increase of individuals on disability. Unfortunately, there’s no doubt that at least some of these cases are fraudulent.

The SSA wants to increase their efforts to identify and prosecute these claimants — especially considering the administration faces huge financial challenges to continue funding the program. With an uncertain future for Social Security in general, this increasing burden on the system only makes things worse.  

Frankly, I’m not shocked that the SSA might increasingly mine social media platforms and profiles for proof of fraud — I’m only shocked that it took them this long to consider this approach.

Social Media’s Popularity Means There’s an Abundance of Data for the SSA to See

There are more people using social media accounts than ever before. According to the Pew Research Center, 69% of all adults have at least one social media account. (Just for reference, this was 5% in 2005.)

50% of those who don’t have a social media account live with someone who does and in the same research report it shows that a good percentage of these individuals use the account of the other person to see posts.

And all those people on social networks? They’re sharing content — and personal information and data — like crazy. On average, people upload 350 million photos to Facebook every day. The platform experiences 100 million daily video views and 4 million likes every minute.

The desire to share the details of your daily experience with your interconnected network helped to drive this kind of growth and mass adoption of the platforms. This treasure trove of data is too tempting and valuable for the SSA to continue ignoring as part of their evaluation.

How Will the Social Security Administration Truly Leverage Social Media for Monitoring and Surveillance of Potential Claimants?

Again, I’m not surprised to see the SSA want to take advantage of the ability to look in on the real lives of people requesting benefits from the program to confirm their claims are legitimate. But the problems come in with the application of the policy.

How would this work? As users of social media, we understand that each photo or video has to be taken in context (and with a grain of salt). We all know that social media serves as a highlight reel of our lives and doesn’t always portray reality very accurately.

In other words, we’ve all posted content meant to paint us in a good light or to make our lives look just grand all the time (even though 5 minutes before you posted a happy picture of you and your spouse you had a screaming match in the living room).

We all do this, and on some level, we all know other people do it too. As users of social media, we understand that what we see on the platforms isn’t 100% representative of our 24/7 daily lives.

But what happens when that personal connection is lost? What happens when there’s no context to the photos and your content is taken at face value with no other information taken into account? Will the SSA understand the context around a photo enough to make a decision about whether you are really disabled?

For example, the leading cause of disability payments are made due to “musculoskeletal and connective tissue” disorders. That seems easy enough to evaluate through images and videos.

After all, if an individual files a claim for disability on the basis of chronic Fibromyalgia but posts a current video of them winning their age group in a marathon, that seems like a no-brainer. Maybe they shouldn’t be on disability.

But again, given the tendency to present our best self to our network on social media, we tend to only post the photos showing us happy and healthy.

Imagine you live with daily chronic back pain, but have a rare day of low pain. Do you think you might be more likely to post photos of yourself and your activities from that particular day than the next few days where confinement to a bed is a real possibility?

You might share those rare, fleeting moments not only because you’re likely happier on that one day you experienced unusually low pain, but also because you may have enjoyed doing something you’re rarely in any physical condition to do, like hike a favorite trail. 

At around 26%, the second leading reason for disability payments are from “all other mental disorders.” How will the SSA use a social media account to evaluate those claims? Does a picture really show what’s going on inside the mind?  

I think the investigation of potential fraud is important, but it needs to be done correctly. The Social Security Administration should understand that life on social media is generally not an accurate recording of someone’s real circumstances.

Regardless of what the Social Security Administration begins doing with social media monitoring, all of us should use this as a reminder that what we say and post online matters and could have consequences.

As this and other policies develop, I’ll be here to give you the details.

Questions?

If you still have questions, you could leave a comment below, but what may be an even greater help is to join my FREE Facebook members group. It’s very active and has some really smart people who love to answer any questions you may have about Social Security. From time to time I’ll even drop in to add my thoughts, too. Also…if you haven’t already, you should join the 100,000+ subscribers on my YouTube channel!

One last thing, be sure to get your FREE copy of my Social Security Cheat Sheet. This is where I took the most important rules and things to know from the 100,000 page Social Security website and condensed it down to just ONE PAGE! Get your FREE copy here.

The History of the Social Security Earnings Limit

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Not long ago, a viewer on my YouTube channel asked me to give her a good reason why we have the Social Security earnings limit. The comments that followed showed how many viewers shared the belief that the earnings limit is unfair and should be eliminated.  

In my response, I explained that the rationale behind the entire program of Social Security was a safety net. The original intent of the Social security program was not to supplement retirement income, but to keep the elderly (most of whom lost any potential long-term wealth in the Great Depression) out of poverty.

I also added that today’s earnings limit is relatively generous compared to where the Social Security earnings limit began. Let’s take a walk through history and see how the earnings limit has evolved.

Understanding the Origins of the Social Security Earnings Limit

The original Economic Security Bill which is what the Social Security Act was originally called) President Roosevelt sent to Congress featured a very restrictive earnings limit.

It said, “No person shall receive such old-age annuity unless . . . He is not employed by another in a gainful occupation.”

Whoa! This means that if you had even a single dollar in wages from a job, you could not collect a Social Security benefit at all.

The Bill reached Congress and then made its way into the House Ways and Means Committee. After holding hearings, committee members suggested dropping the retirement earnings test — but the Senate Finance Committee ultimately decided that the earnings limit should remain.

Eventually, the House version without the earnings limit passed by a vote of 372 to 33. The Senate version with the earnings limit passed by a vote of 77 to 6. After a couple more months of wrangling over details, the government signed the final version of the Bill featuring the earnings limit into law.

The final version of the Social Security Act of 1935 contained this language on the subject:

“Whenever the Board finds that any qualified individual has received wages with respect to regular employment after he attained the age of sixty-five, the old-age benefit payable to such individual shall be reduced, for each calendar month in any part of which such regular employment occurred, by an amount equal to one month’s benefit.”

(Keep in mind that age 65 was the earliest age of eligibility during the first few decades of Social Security.)

Over the next few years, lawmakers realized they needed to make the term “regular employment” more clear and better defined. In the 1939 amendments to the Social Security Act, they defined “regular employment” as having earnings of less than $15 in one month.

How the Earnings Limit Evolved Over Time

By the late 1940s, post-WWII wages rose and the $15 earnings limit became outdated. In the 1950, lawmakers passed more amendments that eliminated the retirement test for applicants at age 75. They also increased the earnings limit from $15 to $50.

The 1950s also saw the vast expansion ofSocial Security, and an additional 10 million people, including many self-employed individuals, gained Social Security coverage.

The earnings test for the self-employed was set at $600 per year initially, but in 1952 that jumped to $900 per year. Meanwhile, the earnings test amount also increased for employees, from $50 to $75.

The 1954 amendments reduced the age where the earnings test no longer applied from 75 to 72. The differences between wage earners and self employed were also made uniform with an annual earnings test.

Up until this point, wage earners faced a monthly test but self-employed individuals had an annual limit of $900. With the new law, the earnings test would only apply if earnings exceeded $1,200. Then, for every $80 increment, one month’s benefit would be withheld.

Further Changes to the Earnings Test through the 1960s and 1970s

The 1960 amendments introduced the phase-in earnings limit where an individual could still exceed the limit without a total loss of benefits.

For earnings between $1,200 and $1,500, the reduction was $1 for every $2 of earnings. For earnings over $1,500 the reduction amount would be dollar for dollar.  

From this point forward, the earnings limit used this phase-in approach. The 1961 amendments increased the upper limit to $1,700 from $1,500 while the 1965 amendments changed this range again.

Recipients could then earn up to $1,500 a year and still get all their benefits. If, however, earnings exceeded $1,500, $1 in benefits would be withheld for each $2 of annual earnings up to $2,700 and for each $1 of earnings thereafter. The 1967 amendments modified this range from $1,680 to $2,880.

The 1972 amendments modernized the method used to determine the earnings limit. Previously, only an act of Congress could mandate an increase in the earnings limit amounts. The 1972 law put the increases “on automatic” by tying them to increases in the average wage index. This became effective in 1975.

From 1977 to Now: The Modern Way the Earnings Limit Evolves

The 1977 amendments earnings limit changes focused on allowing older Americans to access much-needed Social Security benefits to supplement their retirement incomes.

The House passed a bill eliminating the earnings limit at age full retirement age. The Senate passed a similar bill, but it didn’t eliminate the earnings limit until age 70. Ultimately, the conference committee accepted the Senate position and the final legislation ended the earnings limit at age 70 (but it didn’t officially come into effect until 1983).

The 1977 amendments also separated those who were under full retirement age and those who were over full retirement age. They granted a more generous earnings limit of $6,000 annually for those who were are or above full retirement age.

In the 1983 amendments, lawmakers expanded this by not only giving those above full retirement age a higher earnings limit, but also decreasing the amount of withholding by reducing the withholding to $1 for every $3 over the limit. Even though this change was legislated in 1983, it went into effect in 1990.

The next major change introduced the earnings limit as we know it today. The Senior Citizens Freedom To Work Act of 2000 permanently ended the earnings limit at full retirement age and increased the amount an individual can earn in the calendar year they attain full retirement age.  

Since 2000, except for the annual increases, the earnings limit has been unchanged. As you can see from the timeline above, this is the longest period the earnings limit has ever gone without substantial changes.

Part of that is due to the automation of the increases by tying in with the annual changes in average wages, but there has been some talk about the earnings limit being one of the fixes for the pending shortfall in the Social Security trust fund.

The argument is that the earnings limit could be reinstituted for any ages if their income exceeded certain thresholds. This would be the “means testing” that would exclude high income individuals from drawing a Social Security benefit. That may never happen, but the framework certainly seems to be in place for those with high income — even if they’re above full retirement age.

Whatever changes come, I’ll be sure to keep you informed! You can keep up with me on my YouTube channel the other projects I’m involved with.

Also, be sure to get your FREE copy of my Social Security Cheat Sheet. This is where I took the most important rules and things to know from the 100,000 page Social Security website and condensed it down to just ONE PAGE! Get your FREE copy here.

If you want to read more on this subject, check out these resources below.

POMS chart showing all different calcs https://secure.ssa.gov/poms.nsf/lnx/0302501001

Major changes by year here https://www.ssa.gov/history/reports/crsleghist2.html
SSA ET History https://www.ssa.gov/history/ret.html

Are Social Security Payments Guaranteed?

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Many Americans believe that future Social Security payments are an “earned right” when they retire. As nice as that would be, that’s not the case.

The truth is, you are sadly mistaken if you believe you’re entitled to these benefits down the road — even if you pay FICA taxes!

And if you’re sitting there, nodding your head, saying “that’s right, you’re not entitled to anything!” …you might want to sit down and read the rest of this post, too.

Social Security isn’t a guarantee, and it is in fact an entitlement program.

Scratching your head yet? Let me explain… and more importantly, let me try to reduce some of the inflammatory language around this conversation.

Why Aren’t Social Security Payments Guaranteed?

The government almost encourages the belief that Social Security benefits are guaranteed. In fact, in a 1936 pamphlet from the Social Security Administration, it specifically states, “The United States government will set up an account for you … The checks will come to you as a right.”

Whether or not it was intended this way, this pamphlet implied that the new tax would be somehow credit a personal account to which the worker would be lawfully entitled to receive. It didn’t take long for that to get “clarified” by the Supreme Court.

Not long after the Social Security began, a shareholder of the Edison Electric Illuminating Company challenged the tax that funded the program. He wanted to stop the company from making the tax payments and deductions from wages on the grounds that the Social Security Act of 1935 was unconstitutional.

For a period, it appeared that he won. The U.S. First Circuit Court of Appeals held that Title II of the Social Security Act (the heart of the program) was void as it was in direct opposition of the tenth amendment.  However, once the case reached the Supreme Court, things changed.

The Ruling That Nixed Future Guarantees on Your Benefits

In Helvering v. Davis, the Supreme Court reversed the lower court’s opinion and held that the Social Security Act of 1935 was constitutional.

That in itself was not the interesting part. What was interesting was the language that was used in the written opinion. It said, “The proceeds of both taxes are to be paid into the treasury like internal-revenue taxes generally, and are not earmarked in any way.”

That eliminated the idea of the separate, personal account that the Social Security pamphlet originally implied.

Other Court Cases Made It Clear: Social Security Payments Not Guaranteed

In 1960, another case came up that made it clear how the government felt about the individual’s “right” to Social Security benefits.

Ephram Nestor was a Bulgarian immigrant who paid Social Security taxes from 1936 until his retirement in 1955. In 1956, he was deported for his membership in the Communist Party during the 1930s.

In accordance with a 1954 law Congress had passed a law saying that any person deported from the United States should lose his Social Security benefits, Nestor’s $55.60 per month Social Security checks were stopped.

Nestor sued, claiming that he had a right to Social Security benefits regardless because he paid Social Security taxes.

This case made its way to the Supreme Court in Flemming v. Nestor. In the Social Security Administration’s summary of the court’s findings, they state the following:

“There has been a temptation throughout the program’s history for some people to suppose that their FICA payroll taxes entitle them to a benefit in a legal, contractual sense. That is to say, if a person makes FICA contributions over a number of years, Congress cannot, according to this reasoning, change the rules in such a way that deprives a contributor of a promised future benefit. Under this reasoning, benefits under Social Security could probably only be increased, never decreased, if the Act could be amended at all. Congress clearly had no such limitation in mind when crafting the law.”

If there was any doubt left about an individual’s “right” to a Social Security benefit, this case should’ve banished it.

But just in case people forget that benefits can be changed or stopped altogether at any time, the Social Security Administration puts this reminder on every statement they create:

“Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time.”

Paying FICA Taxes Does Not Make Your Social Security Payments Guaranteed

The big takeaway is that your payment of FICA taxes is not necessarily paying for your future access to Social Security benefits. The criteria for eligibility could change with the whims of politics.

Ultimately, you should heed the advice that’s also printed on each and every Social Security statement:

“Social Security benefits are not intended to be your only source of income when you retire. On average, Social Security will replace about 40 percent of your annual pre-retirement earnings. You will need other savings, investments, pensions, or retirement accounts to live comfortably when you retire.

The Social Security Administration today makes it clear that you have no legal right to Social Security benefits, and there are multiple court cases that set precedent to back this up.

Whether or not you agree does not change the reality that paying FICA taxes does not provide you a guarantee to any future benefit from the program.

While Benefits Aren’t Guaranteed… Social Security Is an Entitlement Program

Given the current level of political division, its no surprise that the dialogue about government entitlement programs has gotten really heated.

Many of our congressmen and senators have discovered how polarizing the use of the word “entitlement” is and that they can associate it with words like welfare, handouts, or charity.

Then they can fire up their supporters by loudly proclaiming SOCIAL SECURITY IS NOT AN ENTITLEMENT!

What’s happened here is that they’ve effectively redefined the word “entitlement” into something that is divisive and dirty. How handy.

Here’s the truth: the federal government has referred to Social Security as an entitlement program for several decades.

On their website, you can see hundreds of uses of the word. In fact, they go so far as to explicitly state “The social security benefit programs are entitlement programs.”

What Does Entitlement Really Mean, Anyway?

If you examine the definition of the word “entitlement,” you’ll see there is no mention of welfare, charity or handouts:

  • The Merriam Webster dictionary defines it as “a government program providing benefits to members of a specified group.”
  • The Cambridge dictionary defines it as “something, often a benefit from the government, that you have the right to have.”
  • The glossary of the United States Senate defines the word as “a federal program or provision of law that requires payments to any person or unit that meets the eligibility criteria.” 

The fact is, the phrase “entitlement program” is simply a term for any government program guaranteeing certain benefits to a segment of the population who qualify for them under specific terms and conditions.

That’s exactly what Social Security is. You have to work for at least 10 years with a certain amount of earnings to be entitled to your own benefit. There’s nothing dirty, shameful or beggarly about this word.

But in the highly politicized world that we live in, what words actually mean and the meaning given to words aren’t always the same. 

I hope this helps keep you grounded in the reality we’re working with, and not get swept away by anyone else’s political rhetoric.

Have More Questions?

If you still have questions, you could leave a comment below, but what may be an even greater help is to join my FREE Facebook members group. It’s very active and has some really smart people who love to answer any questions you may have about Social Security. From time to time I’ll even drop in to add my thoughts, too. 

You should also consider joining the 100,000+ subscribers on my YouTube channel! For visual learners (as most of us are), this is where I break down the complex rules and help you figure out how to use them to your advantage. 

One last thing, be sure to get your FREE copy of my Social Security Cheat Sheet. This is where I took the most important rules and things to know from the 100,000 page Social Security website and condensed it down to just ONE PAGE! Get your FREE copy here.

Social Security Scam Alert!

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In 2018, a Social Security scam cost seniors millions of dollars. The scammers recognized a winning formula and have doubled down in 2019. I don’t want you or anyone you care about to get caught up in this. Keep reading; I am going to tell you how you can avoid being victimized by this scam!
In 2018, a Social Security scam cost seniors millions of dollars. The scammers recognized a winning formula and have doubled down in 2019. I don’t want you or anyone you care about to get caught up in this. Keep reading; I am going to tell you how you can avoid being victimized by this scam!

Social Security scams cost seniors millions of dollars.

These scammers have recognized a winning formula to steal your money and have doubled their efforts to get you into their trap.

I don’t want you or anyone you care about to get caught up in this. Here’s how you can avoid being victimized by this scam!

Social Security Scams Over Time

There are some scams that have a longer life than others. The most recent Social Security scam has been around since about 2017 and has started to explode. The number of those affected by this increased ten-fold in 2018 and 2019 is already on its way to being even bigger than 2018.

In 2018, a Social Security scam cost seniors millions of dollars. The scammers recognized a winning formula and have doubled down in 2019. I don’t want you or anyone you care about to get caught up in this. Keep reading; I am going to tell you how you can avoid being victimized by this scam!

There’s nothing incredibly new or savvy about this scam, but it’s working better than most. That’s probably because it’s being aimed at those who count on Social Security payments to buy food, pay for utilities and other necessities.

The Scam

The phone rings, and the person on the other side tell you your social security number has been suspended, and you need to talk to them to get it straightened out. When you talk to them, they’ll have to “verify your identity” and in the process gather all sorts of personally identifiable information that will allow them to get to your money.

Currently, there are two version of this scam. Here’s how the first sounds. 

“YOU HAVE RECEIVED THIS PHONE CALL FROM OUR DEPARTMENT TO INFORM YOU THAT WE HAVE JUST SUSPENDED YOUR SOCIAL SECURITY NUMBER BECAUSE WE HAVE JUST FOUND SOME SUSPICIOUS ACTIVITY. SO IF YOU WANT TO KNOW ABOUT IT…”

This sounds like a pre-recorded bot voice, not an actual person, and the computerized call will continue to tell you how to reach the “department”.

Then there’s the second version that ups the ante with the threat of arrest! The message is much like the first one, but the difference is that the voice says if you do not contact them immediately, they will issue an arrest warrant and arrest you for the suspicious activity.

Keep Yourself Safe

I understand why scams like this work. To an older generation that is not as familiar with technology, it sounds very convincing and scary!

Here are four things to remember:

Number 1…don’t trust your caller ID! In many cases these scammers appear to be calling from the Social Security administration’s phone number. There’s spoofing technology to make it appear that way.

In 2018, a Social Security scam cost seniors millions of dollars. The scammers recognized a winning formula and have doubled down in 2019. I don’t want you or anyone you care about to get caught up in this. Keep reading; I am going to tell you how you can avoid being victimized by this scam!

Second, the Social Security administration will NEVER threaten arrest.

In 2018, a Social Security scam cost seniors millions of dollars. The scammers recognized a winning formula and have doubled down in 2019. I don’t want you or anyone you care about to get caught up in this. Keep reading; I am going to tell you how you can avoid being victimized by this scam!

Third, a social security number can’t be suspended for any reason that I know of. They can suspend benefit payments, but not your social security number.

In 2018, a Social Security scam cost seniors millions of dollars. The scammers recognized a winning formula and have doubled down in 2019. I don’t want you or anyone you care about to get caught up in this. Keep reading; I am going to tell you how you can avoid being victimized by this scam!

Lastly, NEVER EVER EVER provide your social security number to any unknown individuals.

In 2018, a Social Security scam cost seniors millions of dollars. The scammers recognized a winning formula and have doubled down in 2019. I don’t want you or anyone you care about to get caught up in this. Keep reading; I am going to tell you how you can avoid being victimized by this scam!

If you are contacted by a scammer and want to make sure everything is ok here are three ways to find out:

First, contact the social security fraud hotline to report the contact.

Second, if you just want to make sure everything is fine with your benefit payments, call the main SSA number at 800-772-1213. If you want a shorter hold time you may want to just call your local office. You can find that number at ssa.gov/locator. 

In 2018, a Social Security scam cost seniors millions of dollars. The scammers recognized a winning formula and have doubled down in 2019. I don’t want you or anyone you care about to get caught up in this. Keep reading; I am going to tell you how you can avoid being victimized by this scam!

You may be in the same situation I’m in where you’re pretty sure that you’d never fall for this type of scam. But you may know someone who could be more vulnerable to this. Please share this article with everyone who needs to be aware.  

It’s Good To Be Proactive

You’re making a smart move by learning all you can and reading sites like these. It’s your retirement! If you know more about Social Security, and what retirement will look like for you, you will be in a better position to make sound decisions when it’s time. This is why I talk about Social Security … so you know what’s going on in the world around you.

I’d recommend staying connected with my content so you won’t miss anything. In many cases I’ll publish my newest stuff on YouTube and then share it on my Facebook page. Then my content team does their magic and cleans it up into an article for those who enjoy reading. (Again…the article is shared on my Facebook page.)

If you still have questions, you should join my FREE Facebook members group. It’s very active and has some really smart people who love to answer any questions you may have about Social Security. From time to time I’ll even drop in to add my thoughts, too.

Also…if you haven’t already, you should join the 100,000+ subscribers on my YouTube channel!

One last thing, be sure to get your FREE copy of my Social Security Cheat Sheet. This is where I took the most important rules and things to know from the 100,000 page Social Security website and condensed it down to just ONE PAGE! Get your FREE copy here.

Thanks for reading…have a great day.

The Delay of Social Security Delayed Retirement Credits

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Today we're taking about delayed retirement credits and how they get added to your benefit. If you plan to file after your full retirement age, you may be disappointed when you get your first check because those credits aren’t added right away. Let me explain what you should expect and when to apply for benefits to minimize this delay.

What do you know about Social Security delayed retirement credits — and how confident are you in that knowledge?

If you don’t fully understand how delayed retirement credits work and how they get added to your benefit amount, you might be disappointed when you receive your first Social Security check after you file.

You should know that when you delay filing for your Social Security benefits after your full retirement age, your delayed retirement credits aren’t added right away.

Here’s why, what else you need to understand, and when you should file instead to minimize the delay.

Why You May Be Missing Credits

Does the Social Security Administration have a little trick up their sleeves when it comes to delaying your benefits?

It can look that way! They do not add your credits immediately if you file after full retirement age.

To be honest with you, this is a little puzzling to me and I’m not sure why they do this. It’s not as if they don’t have the systems in place to do the calculations. After all, if you file early, the reductions are applied immediately!

So why don’t you get the same treatment when you delay filing?

I’m going to show you how this works — but let me give you a little context around this first.

Know How to Calculate Monthly Changes to Your Benefits

I often discuss the monthly reductions for filing early or increases for filing early, and understanding that is a fundamental part of today’s discussion. Let’s take a look at this chart to start:

Today we're taking about delayed retirement credits and how they get added to your benefit. If you plan to file after your full retirement age, you may be disappointed when you get your first check because those credits aren’t added right away. Let me explain what you should expect and when to apply for benefits to minimize this delay.

You can file for your retirement benefits between the ages of 62 and 70. The red line in the chart above represents your full retirement age.

Knowing this, you can calculate how much your Social Security income benefits should increase if you delay filing — as well as how much those benefits might decrease if you file before full retirement age.

If you file early, decreases are broken up into two separate bands. First, you have the 36 month period immediately prior to full retirement age where benefits are reduced by .555% per month, and then anything more than 36 months, benefits are reduced by .417%.

But if you file after your full retirement age, your benefit will be increased by .667% for every month. These increases are referred to as delayed retirement credits.

What Happens If I File After My Full Retirement Age?

It’s important to understand that there is a difference in how the increases and reductions are applied.

If you file at any time before your full retirement age, your benefit will be calculated by these reduction amounts and immediately reduced beginning with your first check.

That is not the case for the increases.

Today we're taking about delayed retirement credits and how they get added to your benefit. If you plan to file after your full retirement age, you may be disappointed when you get your first check because those credits aren’t added right away. Let me explain what you should expect and when to apply for benefits to minimize this delay.

In the Social Security Administration’s operations manual, you can see there are two times retirement benefits are increased for delayed retirement credits:

  1. The month you attain age 70
  2. In January of the year following the year you earned the delayed retirement credits.

Let’s look a specific example to better understand this.

Make Sure You Understand the Full Impact of When You Choose to File

Let’s assume your birthday is in February, and this is the year you hit your full retirement age.

Six months later, you decide to file for benefits and you receive your first check in September of that same year.

You’ve probably already calculated in your head that you should receive 6 months of delayed retirement credits; that works out to 4% increase to your full retirement age benefit.

When you get your first check deposited in September, therefore, you might be surprised to find that check is for the same amount as it would have been had you filed for Social Security benefits back in February.

The delayed retirement credits would be added — eventually. The fact that they don’t kick in immediately throws many people off!

You’d probably see the delayed retirement credits come through starting in January of the following year, which means you wouldn’t see it on your actual checks until that February.

And no, you don’t receive any sort of payment to make up for those months that you missed.

Can You Get Your Delayed Retirement Credits Faster?

One way to lessen the lag is to file later in the year.

If you want to avoid this lag altogether, you could wait until your 70th birthday. Then, no matter what month it falls on, the delayed retirement credits are added immediately.

Maybe in the future the Social Security Administration can figure out how to do this for any filing age after full retirement like they do before. It can’t be that hard, right?

One would think!

But for now, this is how the system is set up. It’s important to know this so you can get proactive and plan accordingly — and not get hit with a nasty surprise after you’ve already delayed filing so you can get a bigger benefit.

Take Control, Because It’s Your Retirement and Your Benefits

You’re making a smart move by learning all you can and reading sites like these, but don’t use this as specific advice for your own situation. I encourage you to do your research and talk to your own advisors. Most importantly, continue to educate yourself and stay curious!

If you still have questions, you could leave a comment below, but what may be an even greater help is to join my FREE Facebook members group. It’s very active and has some really smart people who love to answer any questions you may have about Social Security. From time to time I’ll even drop in to add my thoughts, too. 

You should also consider joining the 400,000+ subscribers on my YouTube channel! For visual learners (as most of us are), this is where I break down the complex rules and help you figure out how to use them to your advantage.

One last thing, be sure to get your FREE copy of my Social Security Cheat Sheet. This is where I took the most important rules and things to know from the 100,000 page Social Security website and condensed it down to just ONE PAGE! Get your FREE copy here.

Social Security Benefits: File Early And Invest It?

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File early, invest the monthly benefit, and you'll be able to generate more income than someone who waited until later to file. Does it make sense to file early and invest the money?
File early, invest the monthly benefit, and you'll be able to generate more income than someone who waited until later to file. Does it make sense to file early and invest the money?

We’re taking a look at the math behind a social security strategy that’s been around for a while. Here it is: File early, invest the monthly benefit, and you’ll be able to generate more income than someone who waited until later to file.

Effectively…you can do better on your own. But does it make sense to file early and invest the money?

A Decade of Positive Returns Creates Optimism in Investing

There’s nothing like a decade of positive returns in the market to create optimism for investing. We’re starting to see this optimism affect how individuals file for social security.

A few years ago, there weren’t many people saying they were big believers in the market. We were still recovering from the worst market since the Great Depression, and news was still (mostly) negative.

A few years later, individuals started seeing a few years of positive returns. Some of those have been double digit returns, and optimism began rising.

And so I’ve started to hear more people say things like “Devin, I think I could file early for Social Security, invest it, and create more income down the road than what I would’ve had with Social Security.”

So, You Think You Can Do Better?

Now, I’ve heard things like that for a while, but I’ve never gotten into the numbers to see what was really possible. So…I decided it was time for a closer look.

Let’s consider someone with a $2,000 benefit at their full retirement age. For this example, we’ll assume full retirement age is 67.

You can file as early as 62 and get $1,400 or as late as 70 and get $2,480.  

File early, invest the monthly benefit, and you'll be able to generate more income than someone who waited until later to file. Does it make sense to file early and invest the money?

Let’s look at two scenarios: First one is where you need to start your income at 67; and the other is where you need to start your income at 70.

In both cases, I’ll assume that you file for benefits at 62. That benefit has a 2% cost of living adjustment (COLA) applied and that you invest the monthly benefits check.

Here’s how that investment would accumulate at various rates of return from the beginning if age 62 to the beginning at age 67:

File early, invest the monthly benefit, and you'll be able to generate more income than someone who waited until later to file. Does it make sense to file early and invest the money?

First, let’s assume you didn’t make anything. That $1,400 would be worth $87,427. At 4, 6 and 8 percent it would gradually increase and the highest rate of return I assumed was 10 percent where your balance would be $116,985. These amounts would be the available balance to use in supplementing your income.

So now let’s look and see what the income gap would be after we adjust for the annual cost of living adjustments. Your benefit would start at $1,400, but by age 67, it would be approximately $1,546 if there was a 2% annual COLA.

The age 67 benefit was $2,000, but when you add the COLA to it, that amount would now be $2,208. So there would be an income gap of $662 that you would need to create from the invested Social Security benefits.

File early, invest the monthly benefit, and you'll be able to generate more income than someone who waited until later to file. Does it make sense to file early and invest the money?

I’m assuming there are two ways to generate this income. First, is an immediate lifetime annuity. This is the closest thing to your Social Security benefit in that it offers a fixed payment that’s guaranteed for your lifetime. The way these work is that you give a lump sum of money to an insurance company and they send you the payments. The other option I assumed was leaving your money invested and taking a 5% annual withdrawal to supplement the income.

And The Results Are In

Here were the results: If you need to generate an income stream of $662 per month, it would require an annuity of $115,539 and an investment portfolio of nearly $160,000.

File early, invest the monthly benefit, and you'll be able to generate more income than someone who waited until later to file. Does it make sense to file early and invest the money?

For the annuity, this would mean that you’d have to achieve an annual return of 10% and for the portfolio option you’d need to get a return of 21%.

Keep in mind…these are the returns needed to break even. You’d have to exceed that to do better that what you’d get with almost no risk from the Social Security administration. I’m not sure how you feel about your capabilities to get consistent investment returns like these, but if you can…maybe you should start a hedge fund. I can tell you that there’s no way I would take that chance with a client’s money. 

What If You Invest It For A Longer Period of Time… Does That Work Out?

But what if you have a longer time period?

Let’s say that you don’t need the income to start until you’re 70. In this scenario, you’d have from the beginning of age 62 to the beginning of age 70 to receive benefits and invest them. How would the time/value of money change the outcome?

By the time you take your age 70 benefit, it would have grown to $2,905 with an annual 2% cost of living adjustment. That’s an income gap of $1,265 you’d need to cover. Since you’d have a few additional years to invest, the balance of the investment portfolio would be higher than in the prior scenario ranging from 144,000 to 224,000 at 10% annual return.

File early, invest the monthly benefit, and you'll be able to generate more income than someone who waited until later to file. Does it make sense to file early and invest the money?

Now we know you may have saved, but how much would it take to replace $1,265?

You need an annuity of $200,000, and an investment portfolio of around $300,000. This means that for the annuity to work you’d need to get about a 7% return and for the portfolio to work you’d need about a 17% return.

File early, invest the monthly benefit, and you'll be able to generate more income than someone who waited until later to file. Does it make sense to file early and invest the money?

Again…those numbers are just to give you the dollar amount of income that you’d get from Social Security without taking hardly any risk. And, the risk is not the only difference here.

For example, the annuity options do not have survivor benefits, the taxation of an annuity vs. investment portfolio vs. social security is all different so the net amount would not be the same. The annuity options were calculated with today’s interest rates and there’s just no way to know what the interest rates would be in the future and how these annuities would be affected. The investment returns I illustrate are compounded annually and would be slightly different if compounded on a monthly basis. The amount of your social security benefit would also affect the required rate of return on the other options.

This article is based on what we know today with a set benefit amount, but your mileage may vary with your own circumstances.

It’s Your Retirement!

Ultimately, remember…I’m not your financial, legal or tax advisor. This article is meant to help educate you, but not as specific advice for your specific situation. I’d highly recommend that you keep learning and stay curious!

Questions?

If you still have questions, you could leave a comment below, but what may be an even greater help is to join my FREE Facebook members group. It’s very active and has some really smart people who love to answer any questions you may have about Social Security. From time to time I’ll even drop in to add my thoughts, too. Also…if you haven’t already, you should join the 100,000+ subscribers on my YouTube channel!

One last thing, be sure to get your FREE copy of my Social Security Cheat Sheet. This is where I took the most important rules and things to know from the 100,000 page Social Security website and condensed it down to just ONE PAGE! Get your FREE copy here.

Are President Trump’s Economic Policies Saving Social Security?

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#socialsecurity #retirement #devincarroll
The other day, a piece of economic data came out that is good news for the longevity of the Social Security trust fund. It could mean that the fund DOES NOT RUN DRY in 2034 as was previously forecast. I’ll tell you what it is and why its so important to watch this moving forward.

The other day, a piece of economic data came out that is good news for the longevity of the Social Security trust fund. It could mean that the fund DOES NOT RUN DRY in 2034 as was previously forecast. I’ll tell you what it is and why its so important to watch this moving forward.  

Are The Headlines Right About Trump Fixing Social Security?

Not long ago I saw a headline that said something like “Trump Administration policies are fixing Social Security.” I couldn’t find the exact one I was looking for but it’s no secret that President Trump has long advocated that the fix is neither benefit cuts nor tax increases, and instead it’s a simple matter of growing the economy and everything will fall into place.  And there’s truth to that but we are getting so close to the point where even record setting economic numbers will be too little too late. But what we are seeing is promising!

The specific number I’m referencing is the unemployment rate. Economists believe this to be one of the most important economic indicators because of its far-reaching effect.

Unemployment Rate as a Factor

In the Social Security trustees’ report, they list the unemployment rate as one of the factors that will determine how long the funds last. In a very simplified explanation, this impacts the trust fund because with more people working, there are more taxes being paid into the social security trust fund. Thus, the retiree to worker ratio is improved.

Now, in this report they forecast an intermediate cost, high cost, and low cost scenario for all of the various factors.

The other day, a piece of economic data came out that is good news for the longevity of the Social Security trust fund. It could mean that the fund DOES NOT RUN DRY in 2034 as was previously forecast. I’ll tell you what it is and why its so important to watch this moving forward.

The intermediate cost is where they get the assumption that the SS trust fund will be dry by 2034. If the cost goes down, the trust fund will last longer. If the costs go up, it won’t last as long.

The intermediate cost assumption they are using for the unemployment rate is 5.5%. The lowest cost scenario they show is 4.5%. But, for the first time in a very long time, the unemployment rate has dipped below 4%.

As of the last report it was at 3.8%. If it stays down here for long, the Social Security trustees will have to revise their estimates.

What Does This Have To Do With President Trump?

So what does this have to do with President Trump?

Well, he’s the president while unemployment rates have been pretty impressive.

The other day, a piece of economic data came out that is good news for the longevity of the Social Security trust fund. It could mean that the fund DOES NOT RUN DRY in 2034 as was previously forecast. I’ll tell you what it is and why its so important to watch this moving forward.

Since 1969, unemployment rates for the year end have only gone under 4% twice. 2002 and 2018. The question is, is this a result of the policies of Donald Trump?

Yeah…I’m not about to answer that.

If you look at unemployment rates for the last decade, you can see that except for an increase at first, they’ve been coming down for the last nine years.

Is this because of the policies of President Obama? Could it be because of President Bush’s policies before President Obama was in office are finally being felt? We could take this back for decades.

The truth is, I think the President has less to do with the economy than we think. I mean, they don’t control monetary policy, so at best they have short term impacts on the stock market and an indirect effect on the economy.

The point is not to play politics or any of that nonsense. Its to remind you that these trustees’ reports are using assumptions THAT CAN and do CHANGE.  And as things change, you can count on me to let you know.

It’s Your Retirement!

Before we go, I want to thank you for taking the time to get informed. So many people rely on hope that everything will work out. Sometimes it does, but sometimes a lack of planning can ruin what should be your best years. This is your retirement! Please continue to stay informed! 

One last thing, be sure to get your FREE copy of my Social Security Cheat Sheet. This is where I took the most important rules and things to know from the 100,000 page Social Security website and condensed it down to just ONE PAGE! Get your FREE copy here.

Thanks for reading…have a great day.

2021: The Year Social Security Changes Forever

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Social Security benefits are changing forever at the end of 2020. Once the calendar rolls over to 2021, you’ll never be able to get as much in benefits.

Social Security benefits are changing forever at the end of 2020.

Here’s what’s going on.

Let’s Start with a Critical Factor: Your Full Retirement Age

Under the original Social Security Act of 1935, workers had to reach age 65 to receive a full retirement benefit.

This “full retirement age” was actually simply based on the fact that many state pension systems and the Railroad Retirement Benefit system used age 65, so, the Committee on Economic Security – the group that designed the US SS system – decided to go with an age that was already commonly used. 

They also considered using age 70, but ultimately decided that age 65 was more reasonable. Bottom line? Their choice was pretty subjective!

This full retirement age didn’t change from the beginnings of Social Security all the way until 1983.

This was the other time in history where, like today, the Social Security trust fund faced a crisis and nearly ran out of money! To keep this from happening, The NATIONAL COMMISSION ON SOCIAL SECURITY REFORM (which is more commonly referred to as the Greenspan Commission) made a series of recommendations to Congress about how to keep the program solvent for the next 50 years. 

How Changes to FRA Impact Your Ability to Get Full Social Security Benefits

One of the Greenspan Commission’s big recommendations was to increase the full retirement age to age 67. To make this change a little easier to digest, they recommended that the change only impact those who were more than 20 years away from full retirement age and that the change would gradually phase in over a period of 22 years. 

The first changes began by changing the age from 65 to 66. It stayed at 66 for 11 years. But now… it’s going up again. 

For those born between 1955 and 1959, the full retirement age will be somewhere between age 66 and 67. For everyone born in 1960 or later, the FRA will be 67 (for now). 

This takes us back to the beginning where I said that you’ll never be able to get as much in benefits in 2021 or later. Here’s why. 

Why You’ll Never Get As Much in Benefits After 2021

For years we’ve used nice round numbers when calculating the impact of filing for social security benefits early, or later. We’ve said if you file at 62 you’ll get 75% of your FRA benefit amount and if you wait until 70 you’ll get 132% of your benefit amount.

Well, guess what? Not anymore!

Because the increases and reductions are calculated on a monthly basis, once FRA increases, there will not be as many months for benefits to increase by.

The inverse will also be true, the reductions for filing at the earliest age will be steeper because there will be more months between age 62 and full retirement age.  

This is why I stress understanding how to calculate the reductions and increases on a monthly basis. (by the way…the full retirement ages, age-based reductions, and a lot more are all covered in my easy to understand Social Security Cheat Sheet. This is where I took the most important stuff from the 100,000 page website and condensed it down to just ONE PAGE! Get your FREE copy here)

How The 2021 Changes Will Affect Social Security Benefits

Social Security benefits are changing forever at the end of 2020. Once the calendar rolls over to 2021, you’ll never be able to get as much in benefits.

Here’s how this changes the benefits and reductions if we look at filing at the earliest age and at the latest age. 

Currently, the SS filing window is between 62 and 70. You can’t file before 62 and it doesn’t make sense to file after 70. 

So, for those born between 1943 and 1954, the FRA is 66, you are entitled to 100% of your benefit.

You can file as early as 62, but you’ll only receive 75% of your benefit. If you file at 70 you’ll receive 132% of your benefit. Once the FRA starts moving up, it all changes.

You’ll still be able to file at 62, but you’ll only receive 70% of your FRA and if you delay…your benefit will increase to 124% instead of 132%. 

Social Security benefits are changing forever at the end of 2020. Once the calendar rolls over to 2021, you’ll never be able to get as much in benefits.

Don’t Just Hope Everything Will Still Work Out — Get Proactive and Plan Now!

Many people just hope everything will work out in retirement. Sometimes it does, but sometimes a lack of planning can ruin what should be your best years. This is your retirement! Please continue to stay informed. You should start by getting your FREE copy of my Social Security Cheat Sheet. This is where I took the most important stuff from the 100,000 page website and condensed it down to just ONE PAGE! Get your FREE copy here.

If you still have questions, you could leave a comment below, but what may be an even greater help is to join my FREE Facebook members group. It’s very active and has some really smart people who love to answer any questions you may have about Social Security. From time to time I’ll even drop in to add my thoughts, too. 

You should also consider joining the 274,000+ subscribers on my YouTube channel! For visual learners (as most of us are), this is where I break down the complex rules and help you figure out how to use them to your advantage.

One last thing: There is a tremendous amount of misinformation out there about the changes in 2021. Help me clear up the confusion by sharing this article on Facebook. Thanks!

Is Social Security a Good Investment?

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We're talking about what kind of value you actually get from your Social Security taxes. Is this a good investment? If you could stop paying in your part to SS and invest it instead, could you create as much income? We’ll do a side by side comparison of your SS benefits vs. investing and find out...the results may surprise you…

If you had to replace your Social Security benefits with another form of income, how much would you need to save up in order to live off of in the future?

It’s probably more than you think.

The fact is, the income you receive from Social Security may deserve more respect than it currently receives. It’s easy to dismiss your benefits as “too little” or “not enough.”

And it might sound crazy to call Social Security a good investment.

Can We Call Social Security a Good Investment?

But to be honest with you, in all the years that I’ve helped folks with retirement planning, Social Security income is the only income stream that I’ve seen with the following attributes:

  • It’s adjusted almost every year for inflation
  • It’s not 100% taxable
  • It’s backed by the US Government
  • It will pay you for as long as you live

That’s a long string of benefits for one income source. So how much would you need to replace your benefit? Another way of asking that question is, what kind of value you actually get from your Social Security taxes?

Or, even better: is Social Security a good investment?

If you could stop paying into the Social Security system and just invested that money on your own instead, could you create as much income for your future self?

We can do a side-by-side comparison of the Social Security benefits you can expect to receive and the result of investing the money you have to pay in on your own instead to determine if it’s true Social Security a good investment.

What’s Better: Investing the Tax You Have to Pay on Your Own, or Paying In and Receiving Social Security Benefits?

This isn’t just a random question to ask. I receive a lot of comments about opting out of Social Security, and investing the money you’d normally have to pay in to the system on your own instead.

Since my research tends to be driven by curiosity, I decided to take a deeper look at the numbers and see which would work out better…

To get the results I made a few assumptions.

We're talking about what kind of value you actually get from your Social Security taxes. Is this a good investment? If you could stop paying in your part to SS and invest it instead, could you create as much income? We’ll do a side by side comparison of your SS benefits vs. investing and find out...the results may surprise you…

First, I assumed that your goal would be to create income in retirement as opposed to buying a vacation house or something else that would require a lump sum.

Second, I assumed that you took only your part of the Social Security tax you currently pay and invested it.

Why? Because the total FICA tax is 15.3%. If you are an employee you only pay half of that, or 7.65%.

Of that amount, 1.45% goes to Medicare and 6.2% goes to Social Security. It’s that 6.2% that I assume you invest for the purposes of these calculations.

We could chase the rabbit trails of investing the full Social Security tax, but if opting out were allowed, I hardly think an employer could be compelled to give you the other 6.2% to invest on your own.

And ultimately, I wanted to look at “what if you could invest the dollars that you currently have to put into the system?”

Next, we assume a 7% return. Obviously you may do better (or worse) than this.

This in itself raises another assumption to consider: Would you continue to get a 7% return on your investment in retirement, or would you move your money to an investment that may have less market risk when you actually needed to rely on being able to withdraw from your nest egg for income?

If you did, you’d most likely get a lower return at some point in the future. So, in the calculation, I modeled out two rates of return after retirement: 7% and 3%.)

Then, at your full retirement age, the invested balance would be used to fund an income stream that would be equal to the amount of Social Security income for which you would have been eligible.

There are multiple ways to illustrate the withdrawal, but this is the only way to keep it apples to apples.

Finally, I looked at multiple income levels while working in a job from age 19 to 66. To get a baseline, I used the national average wage index which is published by the Social Security Administration:

  • The first income level was for an individual at 50% of the national average wage index.
  • Then I looked at 100%, and then at 150%.
  • For a maximum SS benefit, I also looked at an individual who would’ve earned the maximum taxable wages for every year he or she was working.

With these earnings figures, I used the calculator on the Social Security website to calculate what the benefit for each of these income levels would be at full retirement age.

I then increased that amount by 2% per year to keep up with the cost of living adjustment provided by the Social Security Administration, and that’s the number that I illustrated withdrawing from the portfolio accumulated from the invested Social Security taxes.

Now that you know all of the parameters and assumptions, are you ready for the results?

Here they are…

Do the Numbers Say Social Security Is a Good Investment? The Results

For an individual at 50% of the average wage index, the portfolio value of the money invested would last beyond the expected 85 year life expectancy if invested at 7%.

But if that portfolio received a 3% return instead, this person would run out of money at age 80.

This is because a lower income individual would have a larger Social Security benefit relative to the amount of taxes they’ve paid in, and the withdrawal percentage would be higher for them.

We're talking about what kind of value you actually get from your Social Security taxes. Is this a good investment? If you could stop paying in your part to SS and invest it instead, could you create as much income? We’ll do a side by side comparison of your SS benefits vs. investing and find out...the results may surprise you…

Next I looked at an individual at 100% of the national average wage index. At a 7% return, their invested money would last well beyond age 100.

But they too would run out of money if they only received a 3% return, although they’d at least get a few more years out of it. The money would run out at age 84.

This is where things change… If an individual had earned 150% of the NAWI they would see their benefit increase and would have more in their account when they died than when they started. At 3% it would still last until around age 90.

We're talking about what kind of value you actually get from your Social Security taxes. Is this a good investment? If you could stop paying in your part to SS and invest it instead, could you create as much income? We’ll do a side by side comparison of your SS benefits vs. investing and find out...the results may surprise you…

And finally, an individual who had earned the maximum wage base on an annual basis would see similar results except this time they would never run out of money in either scenario during a normal life expectancy. 

We're talking about what kind of value you actually get from your Social Security taxes. Is this a good investment? If you could stop paying in your part to SS and invest it instead, could you create as much income? We’ll do a side by side comparison of your SS benefits vs. investing and find out...the results may surprise you…

To make sure my numbers were right, I spoke with Dr. Brandon Renfro. Dr. Renfro is a finance professor and a numbers guru. Things checked out!

If You’re Wondering Is Social Security a Good Investment… It Depends on Your Income

Considering we don’t actually have the option to withdraw ourselves from the system regardless of what these results tell us, it’s fair to ask: what’s the point of all of this?

Hopefully you can see that, depending on your income level, Social Security provides a better chance of having income throughout your life than investing on your own and hoping for a big enough return.

If you’re a lower income earner, then investing on your own may leave you in a worse spot than paying into the Social Security system and receiving benefits. And if you earn more income? Then you have a better shot of your own investments providing more money — but again, that depends on your investment choices and your returns. It’s certainly not guaranteed the way a Social Security benefit can be.

Take Action!

Remember: this is your retirement. Stay curious and STAY INFORMED.

You’re making the right moves by reading articles like these, but don’t use this as specific advice for your own situation. Do your research and talk to your own advisors. Most importantly, continue to educate yourself.

If you still have questions, you could leave a comment below, but what may be an even greater help is to join my FREE Facebook members group.

It’s very active and has some really smart people who love to answer any questions you may have about Social Security. From time to time I’ll even drop in to add my thoughts, too. 

You should also consider joining the 100,000+ subscribers on my YouTube channel! For visual learners (as most of us are), this is where I break down the complex rules and help you figure out how to use them to your advantage.

One last thing that you don’t want to miss: Be sure to get your FREE copy of my Social Security Cheat Sheet. This handy guide takes all of the most important rules from the massive Social Security website and condenses it all down to just one page.