What Makes Social Security Unique?
Ok, you might be convinced that SS is going away and the whole system will collapse. Yes we need to save more and invest more.
Well a lot of people I talk to are expecting and relying on Social Security to be there for them and usually 20-40% of their retirement income. So that makes it really important.
What we do not hear enough about is how unique Social Security really is in a retirement income portfolio. For many social security is the only income stream that is inflation adjusted, lasts as long as you do, is tax advantaged, and back by a governmental promise.
Think about it. Can you think of another retirement income stream that has not just one or two of these but all four of these unique characteristics? As a friend of mine so often reminds me "it's all good" and it is good.
Inflation adjusted: Each year a Cost of Living Adjustment is applied and the administration is not to blame for the rate that is determined by the Consumer Price Index or CPA. In 1975 if you had $1 of Social Security Benefits that benefit is now closer to $4.25. Said another way if you were taking $2,000 withdrawal in 1975 then you need to be taking $8500 in today's dollars to keep up with the increases in social security benefits. In 2009 and 2010 were the first time in history that we had no increase. 2012 was recently announced at 3.6% and this takes effect for January 2012.
Tax-Advantaged: The Adjusted Gross Income Plus Tax exempt Income + half of Social Security benefit is the combined income test.
- If your combined income is below $25,000 ($32,000 if married filing jointly), none of your Social Security benefits will be taxed.
- For every dollar of combined income above that level, $0.50 of benefits will become taxable until you reach $34,000 of combined income ($44,000 if married filing jointly) For every dollar of combined income above $34,000 ($44,000 if married filing jointly), $0.85 of Social Security benefits will become taxable–all the way up to the point at which 85% of your Social Security benefits are taxable.*
- Important note: To say that 85% of your Social Security benefits are taxable doesnot mean that 85% of your benefits will disappear to taxes. Rather, it means that 85% of your benefits will be taxed according to your tax rate.
How you apply for the benefits matters. Get informed responsible education and how to get the timing of Social Security matters. You matter. Your retirement income stream matters to you and your family. Consider calculating when is your optimal time to elect and how you elect then check out Social Security Timing by Joe Elsasser a leader in the field of Social Security Planning.