social security

Could We See Changes Coming to Fix Social Security?

Robert Ingram Contributed by: Robert Ingram

Changes Coming to Fix Social Security

For the past several years, you may have seen story after story questioning the health of the Social Security system and whether the federal program can be sustained into the future. If you, like many clients, are thinking about your retirement plan, you’ve probably wondered, “Will my Social Security benefits be there when I retire?”.

Certainly, different actuarial or economic assumptions can influence Social Security’s perceived financial strength and solvency, but it’s clear some steps must be taken. With a system the size and scope of Social Security, one that affects so many people, it's hard to overstate the challenge of finding solutions on which lawmakers and experts can agree.

Funding Social Security - Money In, Money Out

Payroll (FICA) taxes collected by the federal government fund Social Security. How much do we pay? The first $132,900 of an individual’s 2019 annual wages is subject to a 12.4% payroll tax, with employers paying 6.2% and employees paying 6.2% (self-employed individuals pay the full 12.4%).

The government deposits these collected taxes into the Social Security Trust Funds, which are used to pay benefits. Social Security benefits are also at least partially taxable for individuals with income above certain thresholds. For more on Social Security taxation, click here.

U.S. demographic changes pose challenges for Social Security’s financial framework.  Americans are living longer, but birth rates have declined. One implication is that while a growing population draws Social Security benefits, a smaller potential workforce pays into the system.

In its 2018 annual report, the Social Security Board of Trustees projected that the total benefit costs (outflows) would exceed the total income into the trust funds, and the trust fund reserves will be depleted by 2034. Now, the report does not suggest that Social Security would be unable to pay benefits at that point. It estimates that with the trust funds depleted, the incoming revenues would be able to cover about 77% of the scheduled retirement and survivor benefits.

This is still concerning for the millions of retirees collecting their benefits and for future retirees counting on their benefits over the next 15 to 20 years.

So the question is, how can we correct this funding shortfall?

Possible fixes for Social Security?

Ultimately, as with any budget, fixing the imbalances between the Social Security system’s inflows and outflows would involve increasing system revenues, reducing or slowing the benefit payouts, or some combination of both.

There have been a number of proposals discussed in recent years, including:

  • Increasing the Full Retirement Age from age 67

  • Changing the formula for calculating benefits based on earnings history

  • Increasing (or even eliminating) the cap on income subject to the payroll tax

  • Reducing benefits for individuals at certain income levels (“means testing”)

  • Changing how the cost of living adjustment (COLA) for benefits is determined

This past January, the Social Security 2100 Act was re-introduced in the House of Representatives. This series of suggested reforms, originally introduced in 2014 and 2017, has several key items: 

  • Increase the Primary Insurance Amount (PIA) formula for calculating benefits at one’s Full Retirement Age

  • Change the Cost of Living Adjustment (COLA) calculation, tying it to the Consumer Price Index for the Elderly (CPI-E) rather than the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)

  • Increase the special minimum Primary Insurance Amount for workers who become newly eligible for benefits in 2020 or later

  • Replace the current thresholds for taxing Social Security benefits, from a threshold for taxing 50% of Social Security benefits and a threshold for taxing 85% of benefits, to a single set of thresholds set at $50,000 (single filers) and $100,000 (married filing jointly) for taxation of 85%  of Social Security benefits, by 2020

  • Apply the payroll tax rate for Social Security (12.4% in 2019) to earnings above $400,000

  • Continue applying the the payroll tax to the first $132,900 of wages and exempting income from $132,901 up to $400,000, then apply the tax again to amounts above the $400,000 threshold

  • Increase the Social Security payroll tax rate incrementally from the current 12.4%  to 14.8% by 2043

  • The rate would increase by 0.1%age point per year, from 2020 until 2043

  • Combine the reserves of the Social Security retirement and survivor benefits trust fund and the reserves of Social Security’s disability benefits trust fund into a single trust fund

(Note source data: Estimates of the Financial Effects on Social Security of the “Social Security 2100 Act” 

Interestingly, the first four provisions in the proposed bill are actually intended to increase the benefits for recipients. The first provision would slightly increase the benefit amounts paid to recipients through the new formula. The change to CPI-W gives more weight to spending items particularly relevant for seniors, such as health care, resulting in a potentially higher COLA than under the current structure. The third provision increases the current minimum benefit earned, and the fourth item allows for a higher level of income before Social Security benefits become taxable.

To address Social Security’s long-term solvency, this bill focuses on boosting Social Security revenues by increasing the payroll tax rate over time and making more earned income subject to those payroll taxes. That approach is in contrast with other proposals that would focus on managing the outflow of benefits, such as raising the full retirement age from 67 to 70.

This illustrates the philosophical differences in how to address the problems facing Social Security, and what makes reaching consensus on a long-term solution so difficult. 

Should I plan for changes to the Social Security system?

With so many factors at play and strong voices on different sides of the issue, the specific reforms Congress will adopt and exactly when they will occur remain unclear. For most clients, Social Security is part of their overall retirement income picture, but a meaningful source of income.

It is important to have at least a basic understanding of your benefits and what affects them under the current system (benefits collected at full retirement age, changes to benefit amounts based on when they are collected, and the potential impacts of taxation on your benefits, just to name a few factors).

Understanding how your Social Security benefits fit within your own retirement income plan can help you stay proactive as you make decisions in the face of uncertainty, whether controlling your savings rate, choosing investment strategies, or evaluating your retirement goals. If you have questions about your retirement income, we’re always here to help!

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.

*Repurposed from 2016 blog: Will Social Security Be Around When I Retire?

This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the author and are not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor the third party website listed or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Consider these options and strategies to pump up your Social Security benefits

Nick Defenthaler Contributed by: Nick Defenthaler, CFP®

As a frequent speaker on Social Security, I’ve had the pleasure of educating hundreds of retirees on the nuances and complexities of this confusing topic. Over the years, I’ve come to realize that, unfortunately, many of us do not take the decision about when to file as seriously as we should.

your social security benefits

In 2018, the average annual Social Security benefit was roughly $17,000. Assuming a retiree lives for 20 years after receiving that first benefit check, you’re looking at a total of $340,000 in lifetime benefits – and that’s not accounting for inflation adjustments along the way!

We work to help our clients receive nearly double that amount each year – $33,500 – which is close to the maximum full retirement age (FRA) benefit one can receive. Assuming the same 20-year period means nearly $700,000 in total lifetime benefits. It’s not unreasonable for a couple with earnings near the top of the Social Security wage base to see a combined, total lifetime benefit amount north of $1,500,000 as long as you are award of the decision process.

As you can see, the filing decision will be among the largest financial decisions – if not THE largest – you will ever make!

Longevity risk matters

Seventy-five percent of Americans will take benefits prior to their full retirement age (link #1 below) and only 1 percent will delay benefits until age 70, when they are fully maximized. In many cases, financial and health circumstances force retirees to draw benefits sooner rather than later. But for many others, retirement income options and creative strategies are oftentimes overlooked, or even taken for granted.

In my opinion, longevity risk (aka – living a really long time in retirement) is one of the three biggest risks we face in our golden years. Research has proven, time in and time out, that maximizing Social Security benefits is among the best ways to help protect yourself against this risk, from a retirement income standpoint. Each year you delay, you will see a permanent benefit increase of roughly 8 percent (up until age 70). How many investments offer this type of guaranteed income?

Let’s look at the chart below to highlight this point.


You can see a significant difference between taking benefits at age 62 and at age 70 – nearly $250,000 in additional income generated by delaying! Keep in mind, this applies for just one person. Married couples who both had a strong earnings history or can take advantage of the spousal benefit filing options receive even more benefits.

Mark’s story

I’ll never forget a conversation I had with a gentleman named Mark after one of my recent educational sessions on Social Security. As we chatted, he made a comment along the lines of, “I have just close to $1.5 million saved for retirement, I just don’t think Social Security really matters in my situation.” I asked several probing questions to better understand his earnings record and what his benefit would be at full retirement age.

We were able to determine that at age 66, his benefit would be nearly $33,000. Mark was 65, in good health, and mentioned several times that his parents lived into their early 90s. Longevity statistics suggest that an average 65-year-old male has a 25 percent chance of living until 93. However, based on Mark’s health and family history, he has a much higher probability of living into his early to mid-90s!

If Mark turned his benefits on at age 66, and he lived until age 93, he would receive $891,000 in lifetime benefits. If he waited until age 70 and increased his annual benefit by 32 percent ($43,500/yr.), his lifetime benefits would be $1,000,500 (keep in mind, we haven’t even factored inflation adjustments into the lifetime benefit figures).

I then asked, “Mark, if you had an IRA with a balance of $891,000 or even $1,000,000, could we both agree that this account would make a difference in your retirement?” Mark looked at me, smiled, and nodded. He instantly understood my point. Looking at the total dollars Social Security would pay out resonated deeply with him.

All too often, we don’t fully appreciate how powerful a fixed income source can be in retirement. It’s astounding to see the lifetime payout provided by Social Security. Regardless of your financial circumstance, it will always make sense to review your options with someone who understands the nuances of Social Security and is well educated on the creative ways to draw benefits. Don’t take this decision lightly, too many dollars are at stake!

Feel free to reach out to us if you’d like to talk through your plan for Social Security and how it will fit into your overall retirement income strategy.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® He contributed to a PBS documentary on the importance of saving for retirement and has been a trusted source for national media outlets, including CNBC, MSN Money, Financial Planning Magazine, and

Sources: 1) 2) The information herein has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. This information is not a complete summary or statement of all available data necessary for making a decision and does not constitute a recommendation. You should discuss any tax or legal matters with the appropriate professional.

What happens to my Social Security benefit if I retire early?

Kali Hassinger Contributed by: Kali Hassinger, CFP®

Did you know that the benefit shown on your Social Security estimate statement isn’t just based on your work history?

what happens to my social security benefit if I retire early

The estimated benefit shown on your statement assumes that you’ll work from now until your full retirement age.  And, on top of that, it assumes that your income will remain about the same that entire time. For some of our clients who are still working, early retirement has become a frequent discussion topic. What happens, however, if you retire early and don’t pay into Social Security for several years? In a world where pensions are quickly becoming a thing of the past, Social Security will be the largest, if not the only, fixed income source in retirement for many. 

Your Social Security benefit is based on your highest 35 earning years, with the current full retirement age at 67.

So, what happens to your benefit if you retire at age 50? That is a full 17 years earlier than your statement assumes you’ll work, which effectively cuts out half of what is often our highest earning years.

We recently had a client ask about this exact scenario, and the results were pretty surprising! This client has been earning a great salary for the last 10 years and maxing out the Social Security tax income cap every year. Her Social Security statement, of course, assumes that she would continue to pay in the maximum amount (which is 6.2% of $132,900 for an employee in 2019 - or $8,240 - with the employer paying the additional 6.2%) until her full retirement age of 67. She wanted to make sure her retirement plan was still on track even after stopping her income and contributions to Social Security at age 50.

We were able to analyze her Social Security earning history, then project her future earnings based on her current income and future retirement age of 50. Her current statement showed a future annual benefit of $36,000. When we reduced her income to $0 at age 50, her estimated Social Security benefit actually dropped by 13%, or $4,680 per year. That’s still $31,320-per-year fixed income source would still pay our client throughout retirement. Given the fact that she’s working 17 years less than the statement assumes and she has the assets necessary to support the difference, a 13% decrease isn’t too bad. This is just one example, of course, but it is indicative of what we’ve seen for many of our early retirees. 

Social Security isn’t the only topic you’ll want to check on before making any final decisions about an early retirement.

You’ll also want to consider health insurance, having enough savings in non-retirement accounts that aren’t subject to an early withdrawal penalty, and, of course, making sure you’ve saved enough to reach your goals! If you’d like to chat about Social Security and your overall retirement plan, we are always happy to help!

Kali Hassinger, CFP®, CDFA® is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

Any opinions are those of Kali Hassinger, CFP and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. The case study included herein is for illustrative purposes only. Individual cases will vary. Prior to making any investment decision, you should consult with your financial advisor about your individual situation. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Raymond James and its advisors do not provide tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNERTM, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

Social Security Increase Announced

Kali Hassinger Contributed by: Kali Hassinger, CFP®

The Social Security Administration recently announced that benefits for more than 67 million Americans would be increasing by 2.8% starting in January 2019. This cost of living adjustment (COLA for short) is the largest we've seen since 2011 when the benefits increased by 3.6%. 


The Medicare Part B premium increase was also announced, and it will only be increased by a modest $1.50 per month (from $134 to $135.50).The premium surcharge income brackets have also seen a slight increase in the monthly premium on top of the $1.50 standard.These surcharges affect about 5% of those who have Medicare Part B.The biggest change, however, is the addition of a new premium threshold for those with income above $500,000 if filing single and $750,000 if filing jointly. This will affect:


While the Social Security checks will be higher in 2019, so will the earnings wage base you pay into if you're still working.  In 2018, the first $128,400 was subject to Social Security payroll tax (6.2% for employees and 6.2% for employers).  Moving into 2019 the new wage base grows by 3.5% to $132,900.  Those who are earning at or above the maximum will pay $8,240 in Social Security tax each year.  With the employer's portion, the maximum tax collected per worker is $16,780.  

Social Security plays a vital role in almost everyone's financial plan.  If you have questions about next year's COLA or anything else related to your Social Security benefit, don't hesitate to reach out to us.

Kali Hassinger, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.®