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

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%. 

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!

“Devin, they told me I can’t file for Social Security at 62!”

My client, Cheryl, was a little upset. She’d just returned from a trip to the Social Security office where she’d been told that she could not collect benefits as soon as she turned 62.

Cheryl did exactly what she thought she was supposed to do. Her birthday was July 3, so she went into the Social Security office in May and met with a claims representative.

The claims rep finished her filing process and told Cheryl that she should expect her first check on the second Wednesday in September.

What?!

If my client turned 62 in July, why would it take two months to get her first check?

Read more

There are some really good reasons to file for early Social Security benefits. But those only apply in some circumstances — and more often than not, people’s reasons to file early can be downright stupid.

That sounds harsh, but think about it with an open mind: we’re talking about maxing out your available retirement income so you can make the most of this stage of your life. You don’t want to make a mistake here, especially a silly one you could have easily avoided.

Still, even when I give people the information they need to know about filing appropriately for their specific situation, some people just don’t get it.

Read more

Is this statement True or False?

Filing for Social Security at 62 is always a bad idea.

Most of the information and “advice” you find online makes the case that delaying your filing is always the right thing to do. And there’s good reason for that, because filing for Social Security at 62 means taking reduced benefits.

That means filing early means receiving a smaller benefits check. On the surface, that certainly sounds less appealing than waiting and getting a bigger check for doing so.

But it’s not true that filing at 62 is always a bad idea.

You may hear people say things like, “you should always wait until you’re full retirement age for file for maximum amount of benefits.” Again, filing later for Social Security benefits does mean maximizing income… in most cases.

This doesn’t apply to every situation. The decision to file early, at full retirement age, or to delay benefits is highly dependent on your own personal set of factors.

In fact, there are five specific circumstances when I think filing early actually makes the most sense. Here they are:

1. You Need the Income

There’s not a lot to think about here: If you’ve left your job, plan to retire, and need this income, you just need to go file.

A lot of people leave work long before they actually want to leave, or planned to do so. In fact, the Employee Benefit Research Institute did a study in 2016 and found that among those retiring, 46% were retiring before they wanted to:

• 55% of those individuals surveyed retired because of a health concern or disability
• 24% of workers left because their company was either downsizing or going away completely
• 17% of respondents were leaving work to care for a spouse or some other family member

Let’s take a moment to talk about the 55% of individuals who left work because of a health issue or disability. If this describes your situation, you probably need the income benefits could provide to you… but you also need to make sure you file for the right benefits.

What does this mean? Before you go and file for Social Security retirement benefits, you need to thoroughly investigate whether or not you qualify for Social Security disability. 

Assuming your full retirement age is 67, if you file for those retirement benefits at 62, you’ll receive around 70% of your full retirement age benefit amount. If you file for disability and are awarded those benefits, the amount that you would receive would be 100% of your full retirement age benefit, even at 62.

Where and how you file can make a big difference for you and the income you receive. If you’re leaving work because of a disability or because of a health issue, take the time to compare both sets of benefits.

If you qualify for disability, your benefit may be higher than if you file for regular Social Security.  Knowing what you qualify for could mean the difference between maximizing your retirement income, or falling short of what you need to cover your expenses.

If you’d like to read more about this, see my article that takes a closer look at the question, Should You File for Social Security Disability or Retirement? 3 Things to Consider.

2. You’re Single and Have Health Issues

If you’re single and have health issues, you may just want to use a simple break-even analysis. This calculation compares what you’ll receive in cumulative lifetime benefits for filing at various ages.  

For example, if you’re trying to compare filing at 62 versus what you’d receive if you filed at 67, a break-even analysis would tell you that you need to live longer than age 78 for filing at 67 to make more sense over filing at age 62.

You can run all sorts of age combinations in these calculations, but if you’re single and have health issues, this is probably where filing early makes the most sense because you’re not worried about increasing survivor benefits or the host of other factors that married individuals have to worry about.

3. There Is Some Kind of Spousal Issue to Consider

There are a few factors that your spouse’s earnings and health contributes to making this decision. Here are the two that I see most often:

Your spouse is the higher earner and has health issues

The first is if your spouse is the higher earner and has health concerns. If your spouse had higher earnings than you, that means their Social Security benefit is going to be higher than yours.

If they’re also in poor health and have a shortened life expectancy, that means the higher benefit they receive will most likely become your benefit when they pass away. That happens though the survivor’s benefit.

If that’s the case, there’s not much reason to delay your benefit for years down the road just so you can get a higher benefit for the rest of your life, because you’ll most likely start getting that survivor’s benefit at some point in the future.

Your spouse is the lower earner and older than you.

This is the other common case where spousal issues can make it more advantageous for you to file earlier.

If your spouse is older than you and their own benefit is not as high as the amount they can receive as a spousal benefit, it could make sense to file and open up your work record to pay a spousal benefit to them.

When you compare the total amount of cumulative benefits that you could both receive, it may make more sense to do it this way.

For example, assume your spouse has already attained full retirement age and her benefit from her work is $400 per month. You are only 62, but your full retirement age benefit is $2000.

By filing now you’d allow your wife to begin collecting the full spousal benefit of $1,000. Yes, you’d get a reduced benefit of around $1,500 for the rest of your life — but the cumulative amount of benefit received over your lifetime could be greater for filing early.

4. You Are Eligible for a Survivor’s Benefit

This strategy is highly dependent on the math. It could make sense to file for your survivor’s benefit as early as age 60, and then switch to your own benefit down the road up until age 70.

Let’s walk through an example and see how this would work.

Say your own Social Security benefit at full retirement age is $1,500, and the survivor’s benefit that you’re eligible for is $1,750. If you file early, you know there will be some reductions that come into play; your own benefit would be $1,050 and the survivor’s benefit would be $1,394.

Here’s the way this switching strategy would play out:

You would file for survivor’s benefit at age 62 (and remember, you can file for that benefit as early as age 60 or even 50 if you’re disabled, but to keep everything the same, I want to use age 62 here).

You’d then start receiving $1,394 in benefits per month, and then at age 70, you’d switch back to your own benefit.

Because your benefits increase every year between age 62 and 70, your benefit would be $1,860 — and that’s not including any cost of living adjustments, which would be added to this amount over time.

5. You Have Minor or Disabled Children at Home

If you have children, eligible grandchildren, or even a spouse providing care for these children at home, these family members may be eligible for a benefit. Just know you will have to file first before they can receive it!

There’s a rule that states that before benefits can be paid to anyone off of your work record, you have to be receiving benefits. That means filing early could make more sense than waiting.

When combined with your benefits, the benefits to children and your eligible spouse can be up to 180% of your full retirement age benefit. If you have children at home that meet the criteria for eligibility, that’s an obvious reason to consider filing early.

Let’s look at an example to illustrate this.

Say you’re 62 and your wife is 50. You have two children, ages 13 and 11. Thanks to good savings habits throughout your working career, you don’t need Social Security income and can be flexible when you file.

It might seem like it makes sense to wait to file until full retirement age, then, when you’d receive $2,000 (versus filing now, when you’d only get $1,500 per month).   

If you lived until 90, you’d receive an additional $70,000 in benefits for delaying filing until 66 instead of filing at 62. But this doesn’t take into account the benefits paid to your children.

While your children would be eligible for benefits based upon your retirement, the kids cannot get benefits until you file. That means your family would able to collect thousands of dollars more in lifetime benefits if you file early and turn on the benefits for your kids.

That’s the quick rundown of the  five scenarios in which I think it makes sense to file for Social Security as early as possible.

Now, I have to make the side note here before we leave. There’s a video that I did recently called “Three Stupid Reasons to File For Social Security at Age 62.”

It has some amusing comments if you want to go out and read those, and maybe even add your own to that — but the bottom line is that I don’t think that filing at 62 is always right.

Filing at later ages such as full retirement age or even 70 isn’t always right, either! It‘s highly dependent on your individual circumstances.

So what does that mean for you as far as next steps?

Do yourself the favor of getting informed about Social Security. Don’t just take someone’s word for it. And whatever you do, don’t just take the Social Security Administration’s word for it.

If you need help getting started, there are two ways to get help.

First, you should order my bestselling Social Security book on Amazon:

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 330,000+ 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.

If you’ve happened across some of the headlines about the future of Social Security, you may be thinking we should really be talking about the lack of a future for these benefits.

Follow the news around this topic for any amount of time, and you’ll be hit with some alarming claims. Here’s just a quick sampling:

“The entire Social Security program will be fully depleted…in 2034.”

 “There’s a 0% chance that the government will be able to honor its existing commitments.”

If these warnings have you doubting the availability of Social Security funds to supplement your retirement income, you’re not alone.

A 2016 Transamerica study found 77% of employees felt the same way. American workers reported feeling worried there would be no money left by the time they could leave the workforce and draw their benefits.

But here’s the thing: these concerns may be unfounded.

Is there a legitimate reason to feel alarmed? Are the headlines overdramatic, or do they serve as legitimate warnings?

To answer these questions, you need to understand the history of the Social Security Administration and its benefit program. From there, you can make a more informed, educated prediction for what the future of Social Security will look like — and more importantly, how you can plan for that future.

Where the Social Security Program Started

Social Security’s roots stretch back to the Great Depression, and the program started as a way to ensure financial security for the elderly and disabled.

The SSA started with good intentions. The problem? The system was flawed from the start.

The Social Security program was predicated on the assumption that there would be more workers than retirees to fund the benefits, and that people would continue to live to the same median age.

These assumptions might have been factual at the time the program started. But they’re no longer necessarily true, making the original Social Security setup outdated today.

People live longer these days; in some cases, much longer than they used to. And retiring Baby Boomers who now draw income from Social Security are overloading the system, especially as there aren’t enough younger workers paying into the system to keep it sustainable at current benefit levels.

While politicians have both suggested and actually made policy changes to establish a surplus trust fund, it’s not enough. Social Security is on track to exhaust those funds.

Based on that, it looks like people could face a loss of benefits by 2034.

Where This Prediction of a Loss of Social Security Benefits Comes From

We always hear that 2034 do-or-die date, but where did that forecast come from? And more importantly, is it possible that it could be wrong?

If you pull out your 2018 Social Security Trustees report — all 270 pages of it — you’ll see that they make a series of assumptions that lead them to this projected date.

Broadly speaking, the assumptions fit into three categories: Demographic Assumptions, Economic Assumptions, and Program Specific Assumptions. Here’s what trustees are looking at within these broader categories.

Demographic Assumptions

The first scenario under demographic assumptions that matters for the longevity of the Social Security fund is is the high cost scenario. The question is, what if this specific category doesn’t contribute as much as expected to the trust fund, or takes more from the trust fund than expected? That would make the cost of the program high, and therefore contribute to an earlier date at which the funding dries up.

There’s also a low cost scenario, in which workers actually add more than they take or don’t take as much as expected from the trust fund. In both cases, trustees look at things like fertility rates, mortality rates, and immigration. If fertility rates increase, there will be more individuals to pay into the trust fund. An increased child per woman rate would move the needle towards the low cost. If women start having fewer babies than projected, however, it would mean that fewer future taxes are coming in and would move the needle to the higher cost assumption.

For mortality rates, if people live longer, checks have to be paid out longer, thus moving this toward the higher cost. If life expectancy for the average person drops, the scenario moves towards the lower cost side.

Then there’s immigration. If the rate of immigrants increases, there will be more workers paying payroll taxes and move the needle toward the low cost scenario. If the immigration rate decreases, there will be less taxes paid in.

Economic Assumptions

One of the most important categories is the economic assumptions. There are many here, but two are particularly important to highlight: inflation and unemployment rates.

There are a number of ways that inflation could affect the economy, but the most direct impact to Social Security is through the Cost of Living Amount (“COLA”) adjustments. The Social Security COLA is based on Consumer Price Index for Urban Wage Earners and Clerical Workers (“CPI-W”), which is tied directly to inflation.

If inflation increases, the COLA on benefits will be more than anticipated driving the cost up. If inflation is lower than expected, more money can stay in the trust fund… thus driving us toward a low-cost scenario.

And obviously, if fewer people are employed, there are a number of impacts but one that’s clear is less revenue coming into the trust fund in the form of payroll taxes. If more people are working, there will be more revenue in payroll taxes.

The trustees’ report currently have the high cost scenario at 6.5% unemployment, the intermediate cost is 5.5% and the low cost is 4.5%. But when you look at the actual numbers, we are at 4% unemployment right now and have been for over a year. The trustees want an average, so one year pf data isn’t enough for them to change their assumptions — but if it continues to stay low, it will bode well for the trust fund’s longevity.

Program Specific Assumptions

Under the program specific assumptions, there are a whole slew of sub categories — but the incidence of disability awards has a big impact here. Because a disability benefit is equal to a full retirement age benefit, and is usually paid out for a lot longer than a retirement benefit, the cost will increase substantially if disability awards increase. The trustees are actually predicting that disability benefit awards will increase by around 20%  over the next few years. If it’s more than that the cost will be higher. The inverse will be true if its lower than projected.

If any of these factors swing in the low-cost direction, it will lengthen the life of the trust fund. And if several swing in the low-cost direction? We might not see a shortfall at all.

The Future of Social Security: Will There Be Benefits for You?

I’m not endorsing for people to plan for a best-case scenario, and I do think reforms will be needed no matter what. We need to plan for the worst and go from there. Nothing is certain and right now no one really knows when the trust fund will be empty. Some predict that Baby Boomers can always count on including Social Security in their retirement income, albeit with some minor changes, thanks to one big factor: their voting power. Older voters tend to vote in numbers. Boomers will have a strong voice on this topic and that could influence policy around Social Security. It’s likely going to be younger generations who will face the biggest changes to their benefits, with two of the most probable solutions to the insolvency problem being:

1. A cut to benefits, or,
2. An increase in taxes.

Let’s take a look at each of these potential outcomes could look like for future generations.

Cutting Social Security Benefits

We probably won’t see a universal cut in benefits. The more likely scenario? A cut that varies by age and income bracket. The Social Security Administration could also use means-testing to help evenly distribute benefits based on a demonstrated need. This solution would only affect high-income earners (who may not need Social Security to ensure a secure financial future), but implementing this kind of testing could be cost-prohibitive for the government. The easiest and cheapest option is for the SSA to simply increase the benefit age across the board. Instead of allowing people to collect Social Security benefits at 62, it may make more sense to raise the benefit age to 69 or 70. While this sounds painful, it would correct the original flaw in the system that only accounted for a life expectancy of 58-62 (which falls significantly short of current life expectancy of nearly 79). And remember, retirement and collecting Social Security are two separate events. You can retire before you collect benefits. You just need to do some intentional saving and financial planning to make sure you manage your money well between the time you retire and the age at which you can start drawing benefits.

Increasing Taxes to Fund Social Security

Using higher taxes as a way to keep funding Social Security is the second potential solution to keeping the program solvent. But this comes with its own pros and cons. First, let’s talk about how Social Security tax is calculated. Currently, 6.2% of individual income goes to Social Security. This does not mean, however, that you pay 6.2% tax on every penny you earn, Social Security rates are capped, meaning they are only assessed up to a certain level of income (which is $128,400 as of 2018). Anything above and beyond your first $128,400 is exempt from Social Security tax, which means if you earn above that, you’re contributing a pretty small percentage of your income to the program. Increasing or removing the cap could result in substantial revenue, as would simply increasing the tax rate for everyone across the board. Imposing a 1% increase, every year, for a set number of years can also be a meaningful revenue generator, but may be viewed as excessive taxation. The voting power factor might also come into play here if voters balk at the idea of these across-the-board tax increases.

What the Future of Social Security Means for You

Although there are other proposals beyond these two that could help solve the Social Security problem, these are the two most likely outcomes based on viability. While we can’t say for sure what Social Security will look like in the coming years, we do know it will look different and probably not the same for everyone. Boomers can most likely continue to plan for Social Security as a source of retirement income. Younger workers, though, should be looking to take action now to plan for a worst-case-scenario: no Social Security benefits at all. Speaking with a financial advisor is an excellent way to determine your financial goals and create a retirement plan that can provide you with the peace of mind that relying on Social Security cannot.

Still Have Questions About the Future of Your Social Security Benefits?

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.