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Know your social security benefits, then forget them

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I find it interesting to read through past articles as sometimes I find the topic needs to be touched on again and sometimes the information needs to be updated. I wrote on the topic of social security back in 2006.
Unfortunately, some of the government statistics and forecasts are now worse than projected.

For many years, most Americans have traditionally seen social security benefits as the foundation for their retirement in the United States. The social security contributions deducted from their paycheck have, in fact, served as a government-enforced retirement savings plan.

But how many people in the yachting industry have a consistent salary? Between moving from boat to boat and getting paid by 1099 and then going to a W2 and then back to a 1099, how much social security will American captains and crew have when it comes time to retire?

Estimating future social security benefits used to be difficult, but that is not true today. The Social Security Administration now provides an estimate of all future social security benefits to any taxpayer who requests it. To set up a personal account, visit www.ssa.gov/myaccount.

The resulting report will contain a year-by-year statement of earnings that were subject to social security withholding. Carefully check these numbers against your records; occasionally the Social Security Administration will make mistakes. It’s best to resolve any discrepancies long before you need the retirement benefits.

The social security system is also under increasing strain. We now have Obamacare (President Obama’s healthcare reform) being implemented and the fact that we have longer life spans have resulted in an increasing number of people drawing on social security benefits.

As the baby boomer generation (those born between 1946 and 1964) approaches retirement, even greater demands will be placed on the social security system.

Statistics from the Social Security Administration report that in 1945, there were 41.9 active workers to support each person receiving social security benefits. In 2010, there were only 2.9 workers supporting each social security pensioner.

It is projected that by 2030, there will be less than one active workers to support each social security pensioner.

The combination of fewer working people coming behind the baby boomers and our average life span continuing to increase, the federal government has had to make some benefit changes to the social security system. Pensioners used to be able to receive full benefits after reaching age 65. But in 2003, the age to qualify for full benefits began to increase on a graduated scale.

Today, the age to receive 100 percent of your full monthly benefits is 66. If you choose to take retirement early at age 62, you will only get 75 percent of your benefits. The drawback to this is that it will never increase once you choose to take it out, except for a cost-of-living adjustment (COLA).

If you can hold on until age 70, you get 135 percent of your benefit. This is calculated by delayed retirement credits (DRCs). There’s more information on the above Web site.

These numbers have changed from my article in 2006. As I always mention, have a backup plan and then plan for the worst. Who knows how things will change again in the next six years. You should factor this when mapping out your investments with an adviser.

Your long-term retirement planning program should recognize social security benefits as being a smaller part of your income calculations for your retirement. Indeed, some financial professionals suggest ignoring social security altogether when developing a retirement income plan, obviously the safer route.

Non-U.S. citizens should contact their governments to find out exactly what to expect in retirement, if anything. If you think you will get some type of assistance, confirm that now.

Don’t wait until you are no longer earning an income to make adjustments to your retirement plans. I have witnessed this many times through the years with clients. Sometimes there are things you can do while you are still working to help get benefits.

Remember, social security is just one factor in putting together a financial plan. Just like gathering information about a new port, get all the facts to ensure a successful trip.

Capt. Mark A. Cline is a chartered senior financial planner. Contact him at +1 954-764-2929 or through www.clinefinancial.net. Comments on this column are welcome at editorial@the-triton.com.

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