From Peter Reagan at Birch Gold Group
Americans planning for retirement already have a lot to contend with. Today, good news!
This article might ease uncertainty a little when it comes future Social Security benefits.
We’re going to discuss four factors to worry less about.
And then one more we think deserves more attention than it gets.
#1: Worry less about taxation of your Social Security benefits
The idea that your Social Security benefits are tax-free is a myth. They are taxed, just not fully, and the specifics change from time to time.
So each year, you could take a quick look at how they’re taxed, then move on. From the SSA website:
You will pay tax on only 85 percent of your Social Security benefits, based on Internal Revenue Service (IRS) rules. If you:
File a federal tax return as an “individual” and your combined income* is between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits. More than $34,000, up to 85 percent of your benefits may be taxable.
File a joint return, and you and your spouse have a combined income* that is between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.More than $44,000, up to 85 percent of your benefits may be taxable.
Are married and file a separate tax return, you probably will pay taxes on your benefits.
Myth busted.
#2: Don’t fret about the cost-of-living adjustment (COLA)
You might read the following about the COLA and be enticed (or panicked) into filing for benefits earlier to “get a higher COLA benefit:
Social Security and Supplemental Security Income (SSI) benefits for approximately 70 million Americans will increase 8.7 percent in 2023, the Social Security Administration announced today. On average, Social Security benefits will increase by more than $140 per month starting in January.
Bruce Tannahill from Mass Mutual doesn’t think it’s a good idea to worry so much about whatever the current COLA is:
You don’t have to start now to get the benefit of a cost-of-living adjustment, Social Security will adjust your projected benefits to reflect the cost-of-living adjustments that occur prior to the time that you retire.
Consider also that the annual COLA almost never fully accounts for inflation because it isn’t a raise.
That doesn’t mean the COLA isn’t important, but since it changes annually, and there isn’t much you can do to change it, you can worry less about it.
Which brings us to the next factor you can worry less about when planning your Social Security benefits into your retirement income…
#3: You can forget about your “breakeven” age
The Social Security break even age is defined on Investopedia as: “the point in your life when the total of those lower benefit payments comes to equal the total of benefits that you would have received if you waited to take your benefits at FRA (full retirement age), or even later.”
An article on CNBC provided clarity on the break even age range, followed by some advice from one expert:
The age at which you will break even generally ranges from 77 to 83, depending on when you start receiving benefits.
Joe Elsasser, President of Social Security timing software company Covisium, warned about the potential for misleading calculations:
If you’re going to do a break-even analysis on your own, do not include cost-of-living adjustments, if someone else is doing a break-even analysis for you, be mindful that those numbers look big, and that’s why a lot of people use them.
With all of that in mind, it might be best to consider worrying less about the break even age, especially once you factor in the uncertainty in the decision. Keep it in mind, but as Elsasser points out, don’t let the big numbers leave you with glassy eyes.
#4: Social Security is bankrupt
The bottom line is this: Social Security isn’t likely to stop paying benefits anytime soon. With that in mind, another CNBC article sheds light on why that is:
“Social Security is not ‘going bankrupt’; the program will always be able to pay benefits because of ongoing contributions from workers and employers,” said Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare.
But the program won’t pay benefits at the full amount, according to the same piece:
Unless Congress takes action, at that time, 80% of scheduled benefits will be payable from the combined funds for old age and survivors insurance and disability insurance.
While the amount of scheduled benefits payable changes, you could think of it as a benefit “cut” rather than the entire program going bankrupt after 2034 (which isn’t likely to happen). Somehow, probably, Congress will figure out a way to keep it limping along one way or another.
If only because not solving the Social Security funding challenge would enrage their constituents and bring about the end of their political careers.
Hopefully, clarifying these misperceptions about Social Security will help you feel a little more secure.
There’s an even better way to increase your financial security, though…
Instead of worrying, build your own retirement security
Even though it’s not quite as bad as some fear, it’s best not to rely solely on Social Security benefits to fund your retirement. (At best, they’re intended to support less than half your retirement income needs.)
Diversify your savings! Build a portfolio of assets that can add some security and certainty to your retirement. Physical precious metals (especially gold and silver) have historically served as safe-haven stores of value, preserving wealth during even the most troubling economic times. That’s because precious metals have intrinsic value (based on both their inherent utility as well as supply and demand). Gold and silver don’t derive their value from any government. The Federal Reserve can’t print more of them into existence, either.
Diversifying with physical gold and silver can help you preserve your buying power, even as next year’s COLA continues its pattern of not covering inflation. You can get all the information you need about both gold and silver for free to make an informed decision right here.