An office of the Social Security Administration in San Francisco.
It is no secret that the funds used by Social Security to pay for benefits are running out.
New proposals on Capitol Hill aim to correct the program’s solvency.
How dramatic these changes should be depends on how quickly the changes are implemented.
Likewise, people who are planning their retirement now may also want to make adjustments based on unforeseen events that may arise.
It includes any potential cuts in social security pension benefits.
“When you look at all these ‘what ifs’, the adjustments you’re making now to plan something later are much smaller,” said Joe Elsasser, founder and president of Covisum, a social security company that claims software.
To that end, Covisum has developed a calculator to help consumers and financial advisors measure how effective any social security benefits can hit their bottom line in retirement.
To be sure, performance cuts are not a matter of course.
A year ago on Thursday, the Social Security Administration released projections indicating that its trust funds may be depleted in 2035, after which 79% of the promised benefits were to be paid.
An official update is expected to be released soon with the agency’s annual trustees’ report. Other projections has already speculated that the expiration date may be faster due to economic consequences of the Covid pandemic.
To correct this shortcoming, experts generally expect some changes. Benefit reductions are among the options, as well as potential payroll tax increases or a combination of both.
In 1983, when President Ronald Reagan heralded the last major social security reform to correct the programme’s ailing finances at the time, the changes included gradually raising the retirement age to 67 and imposing some taxes on benefits for the first time.
The key for anyone looking to claim social security retirement benefits now is not to base the decision on concerns about what changes might come.
“The temptation may be to act on fear,” Elsasser said. “It’s rarely the best track for financial planning.”
“Having a realistic understanding of the impact, even in a bad case, is better than going in with your eyes closed,” he said.
Covisum’s new calculator helps counselors evaluate decisions on social security requirements. For many people, it is the cornerstone of their retirement plan, Elsasser said.
The calculator can stress test customers’ plans against benefits and other negative scenarios such as poor market results or negative health situations to see if their plan would still be in order.
“If it is, then you do not have to act on fear,” Elsasser said.
If this is not the case then maybe you need to make adjustments to reduce your lifestyle expenses or work longer.
there is also one free version of the calculator available to consumers.
That version requires four data points: Year of birth, benefit amount at full retirement age, percentage of a hypothetical benefit reduction and the year in which the reduction occurs.
Then, the results of a person’s lifetime in five-year steps are compared based on how early they claim – from 62 years or as late as 70 – and how it would be affected if benefit reductions were introduced or not.
Ultimately, the results can be a starting point for people to assess what the potential results could be, which will hopefully lead them to avoid demanding early – and therefore take reduced benefits for life – just because they are afraid of benefit cuts , said Alsace.
Research shows that these cuts are likely to be less than 25% if they happen at all, he said.
In particular, the calculator does not take into account the idea that the benefits could go to zero. Because current tax revenues still support the program, that is a very unlikely scenario, Elsasser said. Even younger generations should continue to see revenue from the program in the future.
“The probability of it going to zero is as close to zero as you can get,” Elsasser said.