What started as a safety net for spouses of railroad workers back in 1935 and now has almost 70 million people collecting, Social Security has become a centerpiece of the retirement income system. There are so many questions that surround this program. How solvent is it, and will it be there for younger generations? Are they going to make changes? When is the best time to take it? How does it affect earnings if I take it while still working? How are annual increases calculated? Our team has complex software dealing with Social Security analysis as part of our financial planning process. In addition, I have gone through comprehensive training over the years to gain an in-depth understanding of all the moving parts. While we cannot cover each piece in this article, we did want to give some thoughts on how our views have changed a bit as of late and where we think best practices may be headed.
For the past two decades or so, our analysis showed that waiting to take Social Security until at least full retirement or later was a solid choice. In addition, there were other fancy things one could do, such as “file and suspend” and “restricted application” that allowed benefits for certain situations. These programs have been largely discontinued. Much of this had to do with break-even analysis and the fact that annual increases were very minimal. FYI, break-even from taking it early vs. full retirement is around 12 years. With recent economic changes, especially regarding inflation, it has caused us to rethink our analysis. For example, the annual increase in 2023 is 8.7%. We expect that we will not see a return from where things were for the foreseeable future and expect more healthy increases. What this does for those looking purely at the numbers is close the gap from taking it early vs. waiting. We do understand that the math on the later side moves up as well, but if we are looking at just the front end, it can be enticing, especially for those inclined to want to go early anyway, for things like early retirement, health, etc.
Social Security is a complicated system that has become more than just monetary, but also political as well as, dare I say, even cultural. While there are opinions as well as facts, we just know it is an important part of what we consider when we help our clients determine their retirement trajectory. While each person has a unique set of circumstances which must be considered when deciding the best outcome, we think that having a complex understanding of the rules is half the battle, so to speak. We also believe that this centerpiece of our American system will continue to be protected, albeit with some changes along the way. And importantly, we believe the changing economic environment presents certain opportunities for those inclined that have not existed for quite a while.
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