Suze Orman: 5 Social Security Facts Every Soon-To-Be Retiree Must Know
Personal finance expert and The New York Times bestselling author Suze Orman has said that when it comes to retirement, every soon-to-be retiree must differentiate between fact and fiction in order to be prepared.
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According to the 2023 Schroders US Retirement Survey, only 10% of non-retired Americans say they will wait until the age of 70 to receive their maximum Social Security benefit payments. As Deb Boyden, Head of U.S. Defined Contribution at Schroders, said in the survey, there is a crisis of confidence in the Social Security system and it is costing American workers real money.
In response to this, Orman noted in an October 2, 2023, LinkedIn post that these are the five crucial facts Americans should know about Social Security.
By 2034, Social Security will not be collecting enough money from current workers to pay out 100% of the benefits owed to retirees.
Orman notes that after 2034, Social Security benefits will not pay out 100%, but one should remember that payments will not stop completely.
“Now I am not suggesting a payout of just 75% is acceptable, but 75% is a lot more than zero. So let’s keep that in mind,” she wrote.
To counter this decrease in payout, Jay Zigmont, CFP and founder of Childfree Wealth, said that beneficiaries should discount the amount they expect to get from Social Security past 2034 in order to be safe. “For younger clients, I encourage them to look at Social Security as a bonus rather than to count on it in retirement,” he added.
Social Security previously experienced similar shortfalls and fixed them without impacting near-retirees.
Orman explained that in 1983 major changes to Social Security were made to address its financial shortfalls, with one such change being the gradual increase of full retirement age from 65 to 67.
“But that change was only made for people who were younger than 43 at the time,” she wrote, explaining that the new rule didn’t apply to people in their late 40s, 50s or 60s. “There is no reason to expect that the needed changes this go-around would hit near-retirees,” she added.
Waiting as long as possible to claim your Social Security benefits (if your health permits) is crucial.
A Social Security payout will be 76% higher if you wait until age 70 to start collecting, which could be extremely helpful if you indeed have a longer life, Orman wrote, noting that “if you start at 70, by age 81 you will have collected more from Social Security than if you had started receiving a reduced benefit at age 62.”
Zigmont echoed the sentiment, saying that while mathematically you could make more if you collect early and invest it, very few people pursue investing and instead just spend their Social Security check. “The longer you wait, the larger your check will be,” he said. “Additionally, Social Security has a cost of living adjustment so if you start with a larger monthly benefit, you will get a larger adjustment for life.”
It’s crucial for the highest household earner to delay collecting for as long as possible.
As Orman explained, it’s extremely important for married couples to know that when one spouse dies, the surviving spouse is only entitled to one benefit: their own, or the benefit of the deceased spouse, but not both. As such, she encourages married couples to consider a strategy allowing the highest earner to wait until the age of 70 before collecting Social Security.
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It’s not an either/or collecting at age 62 or 70.
You can claim Social Security benefits any time between age 62 and age 70, Orman noted, adding that every month that you delay earns you a slightly higher payout.
As Zigmont added, your full retirement age will likely be somewhere in the middle. “Each month you wait to claim increases your monthly amount for the rest of your life. If you can live off of your 401k or other retirement income for 6-12 months and wait to claim Social Security, you end up with a longer benefit for life.”
As the Social Security system continues to undergo uncertainties and shortfalls, it pays to not only understand that system, but to remember these five guidelines as well.
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This article originally appeared on GOBankingRates.com: Suze Orman: 5 Social Security Facts Every Soon-To-Be Retiree Must Know
