Some people wonder if Social Security will remain financially sound enough to pay the benefits they are owed.

For most Americans, Social Security has represented nothing more than some unavoidable payroll deduction with the positively cryptic initials of “FICA” and “OASDI” (Federal Insurance Contributions Act and Old Age, Survivors and Disability Insurance). It hinted at a future that seemed both intangible and far away.

Yet, some Americans now sit on the cusp of drawing on the promise that was made with those payments.

As the growing wave of citizens approach retirement, questions and concerns abound. Is Social Security financially healthy? How much will my income benefit be? How do I maximize my benefits for my spouse and myself? When should I begin taking Social Security?

Questions & Elephants

Answering these questions may help you derive the most from your Social Security benefit and potentially enhance your financial security in retirement. Before you can answer these questions, you have to acknowledge the elephant in the room.

The Social Security system has undergone periodic scares over the years that have inevitably led many people to wonder if Social Security will remain financially sound enough to pay the benefits they are owed.

Reasonable Concern

Social Security was created in 1935 during Franklin D. Roosevelt’s first term. It was designed to provide income to older Americans who had little to no means of support. The country was mired in an economic downturn and the need for such support was acute.1

Since its creation, there have been three basic developments that have led to the financial challenges Social Security faces today.

1. The number of workers paying into the system (which supports current benefit payments) has fallen from just over 8 workers for every retiree in 1955 to 2.8 in 2021. That ratio is expected to fall to 2.3 to 1 by 2038. 2,3
2. A program that began as a dedicated retirement benefit later morphed into income support for disabled workers and surviving family members. These added obligations were not always matched with the necessary payroll deduction levels to financially support these additional objectives.
3. Retirees are living longer. As might be expected, the march of medical technology and our understanding of healthy behaviors have led to a longer retirement span, potentially placing a greater strain on resources.

Beginning in 2010, tax and other non-interest income no longer fully covered the program’s cost. According to the Social Security Trustees 2022 annual report, this pattern is expected to continue for the next 75 years; the report projects that the trust fund may be exhausted by 2034, absent any changes.4

Social Security’s financial troubles are real, but the prospect of its failure seems remote. There are a number of ways to stabilize the Social Security system, including, but not limited to:

• Increase Payroll Taxes: An increase in payroll taxes, depending on the size, could add years of life to the trust fund.
• Raise the Retirement Age: This has already been done in past reforms and would save money by paying benefits to future recipients at a later age.
• Tax Benefits of Higher Earners: By taxing Social Security income for retirees in higher tax brackets, the tax revenue could be used to lengthen the life of the trust fund.
• Modify Inflation Adjustments: Rather than raise benefits in line with the Consumer Price Index (CPI), policymakers might elect to tie future benefit increases to the “chained CPI,” which assumes that individuals move to cheaper alternatives in the face of rising costs. Using the “chained CPI” may make cost of living adjustments less expensive.

Reform is expected to be difficult since it may involve tough choices. But with Social Security playing such a key role for so many retired Americans, lawmakers are expected to come together and find solutions.

1. SSA.gov, 2023
2. SSA.gov, 2023
3. SSA.gov, 2023
4. SSA.gov, 2023

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

There are other ways to maximize Social Security benefits, in addition to waiting to claim them.

Most understand that waiting to claim Social Security benefits can result in higher monthly payments. However, many don’t know that there are other ways to maximize their benefits, some of which depend on their marital status.

Understanding the strategies for maximizing your Social Security retirement income benefits should be prefaced with a review of the three basic forms of retirement benefits:

1. The Worker Benefit: This is the benefit you receive based on your own personal earnings history and for which you become eligible after 40 quarters of work.
2. The Spousal Benefit: This is the benefit paid to your spouse. For non-working spouses, this is 50% of the working spouse’s benefit. For working spouses, it is the greater of the benefit earned from his or her earnings or 50% of the worker’s benefit.
3. The Survivor Benefit: This is the benefit paid to the surviving spouse, which is paid at a rate equal to the greater of his or her own current benefit or, depending on the widow or widower’s age, up to 100 % of the deceased spouse’s current benefit.1

The first and most obvious strategy for maximizing your Social Security benefit is to simply wait to reach age 70 before beginning to take benefits. By waiting until age 70 to receive benefits, your monthly payments may increase by 24%, not including any cost of living increases that may be added to this amount.2

Benefit Maximization Strategies for Widows and Widowers

Remember, there is no spousal benefit for a widow/widower, but he or she does qualify for a survivor benefit that is equal to 100% of the deceased spouse’s benefit (versus the 50% spousal benefit if the working spouse is still alive). This survivor benefit is available at age 60 or even earlier, depending on the widow/widower’s disability status and whether or not they are caring for a child.1

If you are widowed and also have worked for 40 quarters, you will have a worker benefit and a survivor benefit. This presents you with several choices. One choice is to file for the benefit that provides you with the greatest monthly benefit amount.

Another choice may be to start your worker benefit at age 62 and then switch to the survivor benefit once you reach full retirement age. This option is advantageous in instances where the widowed spouse did not accumulate the same level of benefits as the deceased spouse. Choosing this option allows the surviving spouse to take the higher survivor benefit amount. Because there are no delayed retirement credits earned on survivor benefits, there is no advantage to waiting past full retirement age to apply for survivor benefits.3

A final choice is to consider starting the survivor benefit at age 60 and then switching to your own worker benefit at age 70. This strategy allows you to begin receiving income based on the survivor benefit as early as possible and provides you time to build up the maximum worker benefit.

As you can see, there are ways you can potentially raise your Social Security benefits. These strategies can help you maximize your benefits beyond what is available to those who simply delay retirement to age 70.

1. SSA.gov, 2023
2. SSA.gov, 2023
3. Kiplinger.com, March 29, 2023

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.