The Social Security system may be in serious trouble but, right now, it’s still a critical source of support for clients, according to Theodore Sarenski, president of Blue Ocean Strategies Capital in Syracuse.
Sarenski started with the bad news during his presentation before CPA-planners at the Advanced Personal Financial Planning Conference sponsored by the American Institute of CPAs in Las Vegas.
Reserves for Social Security will be depleted by 2033 and, once they’re gone, incoming receipts will cover just 77% of scheduled benefits, Sarenski says. “It sounds like it’s a long time away, but it’s only 19 years.”
Trouble looms even sooner for the Social Security Disabilty reserves, which will be depleted by 2016, according to Sarenski. And, once depleted, anticipated income would cover just 80% of scheduled benefits, he adds.
For these reasons, Sarenski says, he urges caution.
“We need to be conservative, I think, in our planning,” he says. For people who are age 50 or younger, he is currently projecting they will receive 75% of their benefits.
While he holds out hope that government intervention – possibly in the form of tax increases – can provide a solution, planners still can help their clients get solid benefits from Social Security right now.
This is especially important because baby boomers, now entering their retirement years, have not been good savers, he says.
Across the U.S. workforce today, 51% of people have no private pension coverage and 34% has no retirement savings, he adds.
“So, now that we are all depressed,” he says, “what are the things that we can do for our clients?”
His advice includes the following:
Although there are exceptions, planners should urge most clients to wait to take their Social Security benefits. If they take them as soon as they can at age 62 rather than waiting until age 66, or even 70, they will receive lower monthly benefits. Planners should remind clients that Social Security is the only benefit with a built-in inflation adjustment.
“You cannot buy an annuity that has an inflation rider so it’s worth waiting” for the higher number, he says.
2. FILE AND SUSPEND
In some cases, it can make sense to start benefits at age 66 and then immediately suspend them – a strategy many clients are not aware of. For example, a spouse may want to start his benefits and immediately suspend in order to trigger spousal benefits for a wife who is 62 or older. He can then suspend his benefits in order to receive a higher benefit when he resumes them later up to age 70, allowing the benefits to grow by 8% a year. Some people take this route to reduce required minimum distributions from retirement savings.
“The closer [married couples] are in age, the better this works out,” he cautions.
3. MEDICARE B PREMIUM
However, if you do file and suspend, make sure to pay your Medicare Part B premium yourself. If you don’t, Social Security will pay that premium for you, which will reduce future benefits which would otherwise by 8% a year. “Be careful of that,” he says.
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