Yes, Social Security Will Be There For You

Last Updated May 27, 2011 4:53 PM EDT

On Wednesday CBS Editor-in-Chief Eric Schurenberg, Editor-at-Large Jill Schlesinger, and Executive Editor Jack Otter hosted me in a lively video session of Ask the Experts, where readers asked a wide range of questions about Social Security.

Will Social Security be there when I retire, even if retirement is 25+ years away? That was the inevitable first topic that we discussed.

Yes! - that was the consensus view of our group. As long as we have a democracy, we'll have Social Security. Our political leaders respond to our voters, and Social Security is one of the most popular federal programs, so it won't go away. It's also inevitable that some changes will be made, to make the program sustainable, but it's hard to imagine it being scrapped completely.

Then we turned our attention to practical questions; here are highlights of a few insightful questions -- and the answers:

When should I start Social Security?
How do I know whether to start Social Security as early as possible, say at age 62, or delay it to receive higher monthly benefits? The answer comes from one of my recent posts: Remember the ages 78 and 82-1/2. If you think you'll live to age 78, then it makes sense to delay starting benefits until age 66, the Full Retirement Age for most people. If your life expectancy takes you past age 82-1/2, then it makes sense to delay starting benefits until age 70. These strategies help increase your lifetime payout from Social Security.
Is it smart to avoid paying FICA taxes?
A small business owner had arranged his finances such that he hadn't paid Social Security taxes for years. Does it make sense for him to start paying FICA taxes now? Yes -- try to pay taxes for at least 10 years to be eligible for the minimum Social Security benefit. That will also make him eligible for Medicare without being required to pay premiums for Part A, the hospital insurance portion of Medicare. (He'll still need to pay premiums for Medicare Part B). It's virtually essential to have medical insurance in retirement, and for most people, that insurance comes from Medicare. Medicare Part A premiums become very costly if he hasn't paid FICA taxes for 10 years. These answers change if he's married and his wife paid enough FICA taxes to be eligible on her own earnings record; in this case, he might be eligible for spousal benefits from both Social Security and Medicare.

Social Security provides a great benefit -- a monthly income, payable for your life, no matter how long you live, and no matter what happens in the economy. And it's indexed for inflation. You can't get that type of security anywhere else. Many small business owners think they're smart by avoiding paying FICA taxes in their 30s and 40s, when retirement is so far away. But when they reach their late 50s and start thinking about their retirement, that might not seem like such a smart move after all. I encourage every small business owner to pay at least some FICA taxes to establish eligibility for benefits. Some people might justify avoiding paying FICA taxes because they think Social Security and Medicare taxes are a poor investment, but that claim doesn't necessarily stand up to analysis.
How long did my marriage need to last to be eligible for divorced spouse benefits?
If you've been married for at least 10 years and get divorced, you're eligible to receive a Social Security income based on half of your ex-spouse's income. One reader had this unfortunate situation: married on March 3, 1972, divorced on March 2, 1982. Is she eligible for the ex-spouse's benefit? My research assistant called Social Security, and the answer was "no." They go by anniversary dates, so the divorce needed to be effective one day later. The blow would be softened somewhat if she has worked for a full career and paid FICA taxes; in this case, most likely her own benefit will be larger than the benefit based on her ex-spouse's benefit, so she wouldn't get the ex-spouse's benefit anyway. Another lesson learned: Pay close attention to your divorce settlements on all aspects of retirement.

We covered many more interesting topics in our session; here's the complete video clip. Watch through to the end to see our recommendations for fixing Social Security.


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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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