According to the Pew Research Center, about 10,000 baby boomers turn 65 every single day. And, amazingly, that will continue for the next 15 years!
Practically speaking, this means millions upon millions of Americans are facing a critical decision — one that could greatly and permanently affect their ability to retire in comfort.
That decision? When and how to file for Social Security benefits.
I know just how confusing the process can be. And as I helped my own parents navigate their Social Security enrollments, I saw what a huge difference the right strategies can make.
So today, I want to share seven facts about the program that very few people understand …
Social Security Fact #1: A lot of people don’t even know when they can begin taking benefits.
A survey of people in my age bracket revealed that 29% expected to claim Social Security benefits at age 65.
But under current law, my peer group can’t even start collecting until 67!
What’s more, it is almost certain that the number will go up further between now and the time younger folks start retiring.
Of course, I’m far more concerned that millions of Baby Boomers fail to understand their own age-related choices …
Social Security Fact #2: The term "full retirement age" is a misnomer.
For example, when I first started discussing the topic with my mom, she continually referred to waiting until her "full retirement age" of 66.
In her mind, this magical number was THE one to focus on. Taking benefits a few months before that age was a big mistake and waiting past it was probably a mistake, too.
Of course, that’s not really true at all.
While there ARE some benefits to waiting until your "full retirement age" — including the ability to earn as much as you like without affecting your benefit payments — I think you’re much better off viewing the entire process as a gently sloping curve.
Social Security Fact #3: For every MONTH you delay taking benefits, your future check amounts increase.
This happens from the very first month you become eligible to collect Social Security all the way up until age 70.
In other words, while your future Social Security benefits increase about 8% for every year you delay taking them, you accrue a portion of that increase for every MONTH you delay.
Also, since you do not continue receiving increases for delaying beyond age 70, there is absolutely no reason to avoid collecting when you hit that age.
Therefore, if anything, I believe it is far more accurate to call age 70 the real "full retirement age."
Unfortunately, I don’t expect the Social Security Administration or the mainstream financial media to adopt my way of thinking anytime soon.
Another thing you’re not likely to hear in your local newspaper …
Social Security Fact #4: Social Security is NOT a good deal for many workers.
This used to be true, when our country’s demographics worked in the system’s favor.
But today, it’s a different story.
As this article from CNN explained it:
"A couple who each earned the average wage during their careers and retired in 1990 would have paid $316,000 in Social Security taxes, but collected $436,000 in benefits, according to data crunched by Eugene Steuerle, an economist at the Urban Institute.
"Had that couple turned 65 in 2010, however, they would have paid $600,000 in taxes, but could expect to collect just $579,000. This is the first time in the program’s history that taxes outweighed benefits for this group, a couple with average earnings.
"The imbalance will get more pronounced for future generations of retirees. Couples now in their early 40s will have forked over $808,000 in Social Security taxes by the time they retire, but get back only $703,000 in benefits."
This is another one of the vagaries of Social Security’s "pay as you go" design.
Yes, certain groups continue to do well under the arrangement — especially single-earner households.
But there’s no such thing as a free lunch. So for every cohort that benefits from the system’s construction, another will inevitably suffer.
And I’ve still just scratched the surface …
Social Security Fact #5: Select groups of people have been able to opt out of Social Security — including certain religious groups and governmental workers.
For example, Congress created a special exemption for members of the Old Amish Order because they didn’t believe in insurance programs.
Select groups of state and local municipal workers have also been able to opt out of Social Security as well.
So the idea that every American participates in the system is simply not true.
And here’s another mindblower …
Social Security Fact #6: You can collect unemployment AND Social Security at the same time!
Yes, really. According to the Social Security Administration’s own website:
"Unemployment insurance benefits are not counted under the Social Security annual earnings test and therefore do not affect your receipt of Social Security benefits. However, the unemployment benefit amount of an individual may be reduced by the receipt of a pension or other retirement income, including Social Security and Railroad Retirement benefits.
"You should contact your state unemployment office for information on how your state applies the reduction."
Am I the only person who finds this absurd? After all, Social Security was essentially designed to provide a baseline income for folks who were retired.
I realize that someone can also be collecting Social Security while they continue to work. But the difference is that their income would likely reduce their benefit check during that time period.
And either way, the idea that someone can be both "unemployed" and "retired" seems kind of silly.
Lastly, here’s a fact that should concern all of us …
Social Security Fact #7: The tax rate that funds Social Security has already risen SIXFOLD.
When the program debuted in 1937, the initial tax rate was 2% — split evenly between employees and employers.
Today, it’s a shared burden of 15.3%!
Even if we back out the Medicare component, it’s still a combined 12.4% … more than SIX TIMES the amount initially contributed 74 years ago.
This is partly because of changing demographics and the pay-as-you-go nature of the program.
But it’s also because of massive increases in the types of people covered under the Social Security program — including many categories of folks who haven’t actually contributed any money of their own.
And quite frankly, I expect rates to go up again once politicians finally do take a crack at "fixing" things.
I’m not pointing that out to be negative or to scare you.
Instead, I simply believe all Americans need to know the truth, the whole truth, and nothing but the truth when it comes to our nation’s finances and programs.
Because only by understanding the way things currently work — warts and all — can we have any real discussion about how to move forward.