SOCIAL SECURITY

SOCIAL SECURITY
Yesterday, I received a letter from Bob, a friend, who works in the Glen Cove -Safeway store in Vallejo. He wrote that he opted for early retirement Social Security payments. He will continue working. Bob is in a good situation, as he is currently working part-time. He can earn up to $12,000 (2005) dollars a year, before a penalty. After this amount, he will be penalized $1 of benefits for every $2 he earns. His current Benefit is 75% of the Benefit he would have received at age 66, However, the amount of his benefit will be the same over time!
He also mentioned Leo, another friend in the same store, who is 65 and still working. Leo is collecting his full Social Security Benefit, and has no earnings restriction penalty. Had Leo waited until he was 70 before filing, he would have earned additional Social Security credits. Beyond the age of 70, there is no additional increase in Benefits.
Bob’s letter got me reflecting back on my Social Security decision in 1983. I retired on February 1 - prior to being 65 in November. I took a 5% hit from full eligibility, for this nine month shortfall. Even though it was a small decision to take “Early Retirement”, it is was still a decision. Deciding whether to retire early, or work until the legislated-fully vested Social Security age, is one of the biggest financial decisions people will face in their lifetime. It is a “crap-shoot”. There are so many variables and unknowns that you have to consider:-for instance, - will you reach, or exceed, your life expectancy? We are living longer than we were projected to live at birth. This increased longevity has come at a cost - in more chronic -health problems. Also, you have to consider the source for your genes. Were your parents and grandparents long-lived? What was their medical history? Another variable:- How much do you travel on the busy California freeways? Your exposure to all of the goofy - weaving - texting-drivers can be dangerous to your health, and reduce your longevity!
I think that the general consensus is that it is more prudent to file early for Social security - even though you will be receiving smaller monthly payments (these will be “fixed”), for a longer period of time. You are betting that you will beat the Governments’ actuarial by living longer than they calculated. A “no brainer” for taking early Social security payments would be to shelter investments having high returns. You would use your Social Security income rather than cash in your high quality investments. In this recessionary era, this situation would be highly unlikely - unless you have invested in a Ponzi scheme!
I got side-tracked, Back to my decision to retire a little early. The winter season of 1982-3 was particularly rainy. Too, the stress from my commute to San Francisco from Vallejo was bothering me. The travel times to and from, had almost doubled in the 14 years of commuting (1969-1983). Even though I commuted by a charter -Greyhound Bus, it was wearing.
While on the subject of Social Security: - The Social Security Act was signed into law in 1935 by president Franklin Roosevelt. It has been amended through the years. The program is administered by the Social Security Administration (SSA). It is amazing to me, that the fund is still solvent - and is predicted to remain so for many more years - even with the earl “Boomers” joining the ranks. The program is a “Social Insurance”, even though some high-wage earners pay more into the system than they receive back. The system is “pseudo-scientific.” It is based on statistical probabilities (actuarials), and these assumptions change over time. It is based on averages, and no one is “average”. “Life Expectancies” are increasing with each generation. Yet, all-in-all, the Benefits are a God-send to great number of people. For some, it is their major source of income. This is outside of the Supplemental Security Income (SSI) program. While SSI is managed by SSA, the SSI funds are not part of the Social Security taxes.
Good luck, one and all, on your decision making!

RCL
October 20, 2009.