It's hard to be optimistic about Social Security. With many experts pointing to Social Security's imminent collapse and politicians calling it a Ponzi scheme, millions of retirees and near-retirees now see their financial future in jeopardy.
But what if you were given the choice of delaying taking Social Security in exchange for a bigger payoff down the road? What if our doing so would save the entire Social Security system for generations to come?
How Much Say Do You Really Have?
Right now, the year you were born determines what your normal retirement age is. You do, however, have a choice about when to start tapping into your Social Security benefits -- within limits.
You have an eight-year window -- any time after you turn 62 to the time you turn 70 -- to start getting your monthly checks. And the longer you wait, the bigger those checks will be.
But what if you could put off the payday even past the age of 70 in exchange for even bigger monthly payments? And what if, rather than taking the full amount you're entitled to when you retire, you could choose to take only a portion of your expected monthly payment and open up the potential to get bigger checks down the road?
One insurance expert thinks that such flexibility -- giving retirees more choices about how they take Social Security -- could save the entire system from the doom-and-gloom end so many fear.
Planning a Semi-Retirement Party
Jerome Golden, who helped develop a variable annuity product that pays guaranteed annual income for life, believes that the key to Social Security's survival is to address the new realities of older American workers.
One of those new realities is this: A lot of people plan to continue to work -- in some capacity -- well into their "retirement" years.
These people will have additional income to cover costs, so they'll be less reliant on a monthly check from Uncle Sam. They can leave those funds in the trust and prevent it from going bust, as it is scheduled to do in in 2036.
Are We Just Rearranging Deck Chairs Here?
Let's say that customized Social Security options would indeed save the program money, as Golden asserts in an op-ed piece from December. That assertion raises an important question: Why would beneficiaries take voluntary steps that would give up value?
Golden says that even a modest rate of seniors postponing collecting their benefits could save the Social Security program $200 billion-$400 billion in the next 10 years. But those savings come from not having to pay beneficiaries during the period they're deferring their benefits.
At some point in the future, the higher payments due those retirees have to get paid -- and that's when the big savings could potentially disappear.
In fact, since the proposal states that its reform aspects aren't designed to cut the lifetime value of anyone's Social Security benefit, timing is the key to the proposal. Golden argues that putting off having to pay some retirees will help Social Security get through a demographic bump of Baby Boomers.
But trying to persuade people already nervous about their retirement finances to put off getting benefits could be a tough sell.
What You Can Do Right Now
Although it has its downsides and makes some big assumptions, the Social Security reform proposal has a lot of merit. Having additional options is always a plus for participants. At worst, you can simply pick the same benefits you'd be entitled to receive under the current program. If you think you can do better with the new options, you'll pick them.
Any move to acknowledge Social Security's problems is a good one. But the prudent thing to do is to take your own steps to protect your financial health from any future problems with Social Security. Given the difficulty in getting any sort of entitlement reform passed -- let alone such a fundamental shift in the way the program offers its benefits -- you simply can't afford to count on such a solution happening quickly enough to rescue your retirement.
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