All Things Financial Planning Blog


Social Security

Coming ‘Of Age’ – ‘Retirement Age’ That Is…As more and more of our ‘baby boomers’ come of age and near the time for applying for social security benefits, I thought it might be appropriate to review a little bit about our social security benefit program as it applies to everyone.

It is extremely important to understand what our social security options are before we make a potentially irrevocable decision about taking and receiving our benefits as the dollar amounts received over our lifetimes could be meaningfully more!

Taxes – Funding Benefit and Receiving Benefit
Social security benefits are funded by contributions made through payroll taxes that are half paid by the employer and half paid by the employee with self-employeds effectively paying both halves. When we receive social security benefits they are income tax free unless you ‘make too much money’.

So managing income recognition and managing the character or type of income (cash flow) received when we are drawing social security benefits can be extremely important in maximizing what we keep of this otherwise income tax free benefit!

Social Security Benefits Started Before Full Retirement Age (FRA)
If you start your social security benefits before FRA you will receive a reduced benefit of about 75% at age 62, about 80% at age 63, about 87% at age 64 and age 65 about 93%. Another complication of drawing social security before the year in which you turn FRA is that if you keep working you will have to give back some of your social security earnings.

In 2013 that $1 of ‘giveback’ for every $2 of earned income starts when you make more than $15,120. In the year you reach FRA the ‘giveback’ becomes $1 for every $3 of earnings above $40,080 (2013 amount).

Social Security Benefits Started At Full Retirement Age (FRA)
Social security benefits are calculated based on a minimum of 40 credits (quarters of covered work) to be eligible for benefits. Depending on your birth date, your age of retirement, FRA, will vary between 65 and 67 years of age (if you were born after 1960).

The Social Security Benefits Administration has a calculator for you to run some what-ifs about choosing a retirement date. They also have other calculators that can run estimated benefits, offset effects (see discussion below), etc., etc. Besides the when to take retirement question, there are other strategies to consider in maximizing the social security benefits to be received.

One such strategy is called ‘file-and-suspend’ which may allow a qualifying recipient to suspend payments while the spouse files for spousal benefits.

Another strategy comes available to us when we have been married to another for at least 10 years. In those cases, you may qualify for benefits based upon the former spouses earnings. If you wait until your FRA, you can file on your former spouses earnings for a spousal benefit and delay taking your retirement until age 70. This strategy will not work if you apply for the spousal benefit before FRA!

Social Security Benefits Started At Age 70 (Post-FRA)
By waiting until age 70 to draw upon our social security benefits a person born after 1943 would have their FRA benefit increase 8% per year by waiting until age 70! Very compelling, indeed!

Social Security Benefits Post the Windsor Supreme Court Decision
As a result of the US Supreme Court decision on same sex marriages the Social Security administration is no longer prohibited from recognizing same-sex marriages for purposes of determining benefit claims filed after June 26, 2013. The decision and its social security benefits impact are being discussed by the Administration and exact details on same-sex marriage benefits will be forthcoming.

Medicare Starts At Age 65
Social security is one matter, Medicare is another! If you do not sign up for Medicare at age 65, your Medicare coverage may be delayed and cost more!

‘Other Pension’ Offsets to Social Security Benefits Received
Two issues that could impact your benefit received are the following.

  • Government Pension Offset. If you receive a pension from a federal, state or local government based on work where you did not pay Social Security taxes, your Social Security spouse’s or widow’s or widower’s benefits may be reduced.
  • Windfall Elimination Provision. The Windfall Elimination Provision primarily affects you if you earned a pension in any job where you did not pay Social Security taxes and you also worked in other jobs long enough to qualify for a Social Security retirement or disability benefit. A modified formula is used to calculate your benefit amount, resulting in a lower Social Security benefit than you otherwise would receive.

Survivors Benefits and Benefits for Children
Benefits can be made available to others based on our benefit should we die or become disabled. Two of those are survivor benefits (spouse) and benefits for children.

  • Survivor Benefits. Your widow or widower may be able to receive full benefits at full retirement age. Your widow or widower can receive benefits at any age if she or he takes care of your child who is receiving Social Security benefits and younger than age 16 or disabled.
  • Benefits for Children. Children of disabled, retired or deceased parents may be entitled to a benefit. Your child can get benefits if he or she is your biological child, adopted child or dependent stepchild. (In some cases, your child also could be eligible for benefits on his or her grandparents’ earnings.)

To get benefits, a child must have:

  • A parent(s) who is disabled or retired and entitled to Social Security benefits; or
  • A parent who died after having worked long enough in a job where he or she paid Social Security taxes.
  • The child also must be:
    • Unmarried;
    • Younger than age 18;
    • 18-19 years old and a full-time student (no higher than grade 12); or
    • 18 or older and disabled. (The disability must have started before age 22.)

Concluding Thoughts.
Social security benefits have been providing a ‘safety net’ to our citizens since the program came into existence.

Pre-retirement benefit programs like ‘Benefits for Children’ and ‘Surviving Spouses’ provide support to those qualifying families who have lost a breadwinner.

Retirement benefit program options are diverse and not readily understood by many. For some households social security retirement benefits comprise as much as 85% of household income so ensuring that one receives as much as is legally possible of the benefits that they have earned the right to, is so important! Consult with your advisor before you make any decisions. You may well be bound to them for your lifetime!

David Bergmann, CFP®, EA, CLU, ChFC
Managing Principal
The David Bergmann Group
Marina Del Ray, CA


Coming ‘Of Age’ – ‘Retirement Age’ That Is…

As our baby boomer population starts contemplating the day they will leave the workplace, they begin to realize that there are a lot of decisions to be made regarding workplace and government provided benefits. Decisions regarding pension payouts may be mind-numbing – (a) single life, (b) joint life -100% benefit, (c) joint life – 50% benefit, (d) lump sum etc., etc. The same might be said for social security benefits – (a) take it at age 62, (b) take it at ‘full retirement age’, or (c) take it at age 70, what is the right decision for you? Further complicating the social security election decision could be the ability to draw on benefits of former spouses to whom you were married for more than 10 years. Needless to say there are a lot of decisions ‘of a lifetime’ that need to be made when you ‘come of age’.

Number-crunching a pension plan payout election or number-crunching a 401(k) ‘payout sustainability’ amount are calculations that need to be tailored to the needs of the individual and their comfort level regarding the assumptions used in analyzing the decision options so we won’t explore those calculations here. 

Other coming of age decisions, like Social Security and Medicare can be more generically discussed.

Medicare eligibility begins at age 65. If you enroll to receive social security benefits at, or before, you turn age 65, you will be automatically enrolled in Medicare. If you are not receiving social security benefits when you turn age 65, you can, 3 months before your 65th birthdate or up to 3 months after (to ensure no delay in your Part B benefits), apply for Medicare. Failing to timely file can cause your Part B premiums to jump 10% for each full 12-month period that a retiree did not sign up. Don’t worry if you are still working and have health benefits. The government and your employer plan will coordinate the primary payor issue. Alternatively, if you are still working, you can enroll later without penalty for up to eight months following retirement. Always check with Medicare at age 65 to learn about your options and any penalties that could come into play.

Traditional Fee for Service Medicare or Medicare Advantage. You will have a choice between traditional fee for service Medicare or Medicare Advantage. Traditional Medicare has gaps in coverage so many seniors chose to purchase a ‘Medigap’ policy to help cover those expenses in the gaps. Very important to remember is that a Medigap insurer cannot use medical underwriting in the 6 month window of opportunity (Medigap Open Enrollment Period) which begins on the first day of the month in which you’re both 65, or older, and enrolled in Medicare part B! Prescription drug coverage may be available with a Medicare Advantage Plan as might be vision, dental. Medigap policies sold after January 1, 2006 are not allowed to include prescription drug.

Social Security – Age 62, Age 65 or Age 70About 50% of Americans file for social security at age 62 despite the fact they then will have an approximate permanent 25% reduction of their annual benefit. If, alternatively, we can wait until full retirement age (‘FRA’ – depends on birth year) and beyond, we can increase our FRA benefit by 8% for each year we wait. If we take Social Security before FRA and continue to work making more than $14,640, we will have to repay $1 of social security benefit for every $2 we earn over that threshold. After FRA, there is no earnings problem with having to repay social security benefits paid to you. If you receive a pension or retirement benefit from work in another country, it may have an effect on your Social Security benefits under the Windfall Elimination Provision. If you were married to a person for more than 10 years you may be able to file for benefits based on their earnings history. This can create an invaluable planning opportunity. If we draw Social Security benefits at FRA on the former spouse’s earnings and postpone taking Social Security benefits based on our earnings history, we can take advantage of that 8% per year benefit payout increase effectively increasing our lifetime payout by as much as $100,000 to $200,000!

Needless to say, there are a lot of critical planning decisions to be made when we ‘come of age’. Don’t miss out on deadlines and make your choices wisely. Your decisions will most often be irrevocable so seek counsel from a learned advisor and the Social Security Administration so that costly mistakes do not occur. It’s been your lifetime of work, now that you’ve Come of Age, it’s time to enjoy the all of the fruits of your labor!

David Bergmann, CFP®, EA, CLU, ChFC
Managing Principal
The David Bergmann Group
Marina Del Ray, CA


How Will a Reduced Social Security Benefit Affect Me?

In an earlier blog, I wrote about the impact of the higher age at which social security benefits start (Full Retirement Age or FRA) based on the changes in the law enacted in 1983. The premise of that article was that the benefit was 19% lower because current retirees have an FRA of 67 versus the 65 FRA of their parents.

Subsequently, I wrote another blog that referenced the current challenge the country has in raising the debt ceiling and how to reduce the budget deficit that is currently adding over $1 trillion to the national debt each year. In that blog, I identified several ways in which the annual deficit could be reduced by changing the way in which certain benefits are calculated so that less would be paid out each year to the beneficiaries of these benefits. One of the changes that I suggested could be done was to reduce the annual increase in the social security benefits that is tied to the Consumer Price Index (CPI).

Lo and behold, a few weeks later several articles appeared that suggest one change would reduce the annual increase in the CPI amount by .3% annually by changing what is included in the CPI index. The changes are technical in nature and beyond the scope of what I want to discuss with you, so I will leave that research to you to find those differences. In this blog I want to identify for you what this suggested .3% reduction in benefits will mean to you and to the benefits you will receive. Let’s start slowly so as to keep all of us on the same page.

Your benefits will be based on the high 35 years of your actual earnings each year you work up to the maximum wage base each year. For those of us who started working in 1963 the wage base maximum was $5,200. Today the maximum is $106,800 of earnings that goes into this calculation. Since each of us earns a different amount every year, each of us will have a different benefit when we retire. What is true, however, is if we earn more each year than we did the previous year, our retirement benefit will be higher than if we earned the same amount every year. So work harder, make more money and the reward will be a higher annual benefit from social security when you eventually retire.

The next thing to appreciate is that if we start receiving our social security benefits at age 62 rather than at our FRA, the annual benefit will be much lower (as much as 32% lower) than what the benefit will be if we wait to the FRA age to start it. This will be significant over our lifetime, especially if we have good genes and live to a ripe age of 90 to 100 or more. So think long and hard about when you start your benefits if you want to get the maximum out of this great benefit.

Now we are ready for that annual CPI increase. Let’s say you start with a benefit of $1,200 per month. If the annual CPI increase was 3% (this is the long term average annual increase including the zero % increase in the past two years), next year your monthly benefit would  be increased by $36 to $1,236, the next year another $37 increase will put it at $1,273, and so on.

So if they change the method to a lower CPI that averages 2.7% annually (.3% less than the CPI used today), the increase is only $32 to $1,232, then a $34 increase the next year to $1,266, and so on. After two years, you are receiving $12 per month less which is $144 per year of income you will not have. Like the snow ball going downhill, this difference gets larger over time. After 10 years, the difference is $41 per month which equates to $492 per year. That will be pretty big money to some retirees. So let’s talk about how to offset this through saving more each year when we are working and having options on how we save or spend what we earn.

While none of us knows the exact time of our demise, we do know that people are living longer today than our ancestors lived. The largest segment of growth by age group is people over age 80 and many more of them are women than men. So when we retire at age 62, many of us can be looking at receiving this benefit for more years than we actually worked and earned money. So we need to look at the long term impact of what these small changes in the formula have on our financial well being.

To do this, I had to crank up my magic worksheet and do some serious number crunching to get a real answer for you. For this I took a client (John or Nancy) who is receiving a monthly benefit of $1,659 today and compared his annual social security at various stages down the road at an average increase of 3% per year (the long-term average) with a 2.7% annual increase (what the rate of increase would be under the new CPI). In 10 years, the monthly benefit would go to $2,165 per month under the 3% annual increase compared to $2,109 at the 2.7% increase. In 20 years, the monthly benefits go to $2,909 and $2,752 respectively, a difference of $157 per month and $1,884 annually. Should they live another 30 years and the program had no further changes in the next 30 years, the monthly amounts are $3,909 and $3,592 which is a difference of $317 per month and $3,804 per year.

Let’s assume that John/Nancy need these amounts to meet their monthly expense needs, what amount would John/Nancy need to save prior to starting their social security benefits to cover this shortfall over their lifetime?  For this I did several calculations to use. First, I assumed that the money would be invested and earn a long term rate of 6% until needed to meet the annual shortfall. If they had $10,000 more available at the beginning of retirement, this money would last 25 years. At $15,000, it would last 33 years, and at $20,000, this would cover 40 years of shortfall in the social security benefit.

Now comes the big challenge, how do we accumulate the desired amount between today and when we retire and start our social security benefits. One thing we could do is delay the start of our benefits by one or more years. This would increase our monthly benefit by about 8% for each year of deferral. For John/Nancy, that would be about $133 per month for every year they delay the start of their benefits. 

But if you have already started your benefits, that option is not available to you. So you need to be saving some additional amounts each month prior to retirement in order to accumulate the amount needed. So if you need to have $15,000 available when you retire to make up this shortfall in monthly benefits, here are some guidelines: If you have 10 years to go (age 52-55 today), you need to save an additional $1,000 per year. If you have 20 years (age 42-45 today) you need to save about $400 per year). Finally, if you have 25 years (age 37-40 today), you need to save $250 more per year. As you can see, the longer you have to save, the easier it is to save per year. But you need to get going – NOW.

In future blogs I will tackle some of the other major issues we as individuals need to address now to avoid the challenges I believe each of us will have to face in the future. This would include items like being responsible for more of our medical expenses in the form of higher premiums, more co-pays and deductibles, paying higher income tax rates, higher FRA ages for social security, or other things that are unforeseen today.


Francis St. Onge, CFP®
Total Financial Planning, LLC
Brighton, MI


Are My Social Security Benefits Really Going Down by 19%?

In the past several weeks there have been numerous articles with different titles, but the message was that social security benefits might be going down by 19%. These articles were stimulated by a study released by the National Academy of Social Insurance in June 2011 that was explaining the impact of the changes passed by Congress back in 1983.

Given the level of discussion that has surrounded the social security program and its impact on our national debt problem, I decided to look into this study to see what exactly were the issues that caused that amount of drop in benefits.

As I suspected, the numbers were correct in the calculations but, for my clients, would be rather misleading when it comes to how the benefit changes would impact them when they retire. Let me provide a context to these numbers. Then let me try to provide a perspective on what you should do about the financial impact.

The 19% reduction really consists of three components:

  • Raising the full retirement age from age 65 (for someone born in 1936 or before) to age 67 for someone born in 1960 or later accounts for 13.3% of the decrease.
  • Taxing some of the social security benefits received results in a 5.1% cut in benefits.
  • Delaying the Cost-of-Living (COLA) adjustment by 6 months results in a 1.4% cut in benefits.

All three components have been in effect since 1983, so all of us have had ample time to adjust to these reductions (not my word, the study used the reduction word) if we have been receiving or will be receiving benefits in future years. More importantly, these changes will impact those of us who will be retiring in the future. Remember, the person born in 1960 will not be reaching their full retirement age until the year 2027 – that means you have 16 more years to work and earn benefits as well as contribute to your investments to make up any shortfall that may occur from this reduction in benefits.

So let’s look at what these numbers mean to you going forward. Most examples I found dealt with the monthly benefits being $1,000 per month, so I will use that amount for illustration purposes in this blog.

If you were born in 1936 and started receiving benefits in 1998 when you were age 62, the monthly benefit would be $800 per month. If you were born in 1960 or later, you will become age 62 in the year 2022 or later. If you started your benefits in 2022, the monthly benefit would be $700 per month, or $1,200 per year less than your earlier counterpart born in 1936. If you lived until age 95, you would receive $39,600 less in benefits over that time period versus what your counterpart would have received. Since you have another 11 years to work and save, this would suggest you need to ramp up your annual savings by about $3,600 annually.

But what if you worked beyond age 62 and waited to take your benefits at a later age? The reduction in benefits when compared to your older counterpart would not really change. However, for every year you work longer, the more time you would have to save money to make up the shortfall. In addition, you would have less years remaining to receive benefits in your lifetime. This would mean you would have to save less each year to make up that shortfall.

There is another issue related to the benefits you receive between age 62 and age 67 under the current law. You are limited as to how much you can earn each year and not lose some or all of your social security benefits. Currently, the annual earnings limit is $14,160. Above that amount you lose $1 of benefits you receive for every $2 of earnings. What this means is that if you earned $34,160 of earnings in a year you would give back $10,000 of benefits paid to you. This may suggest that you will not be taking your benefits at age 62, but waiting for a later time to start your benefits, like maybe age 67 which is your full retirement age when the earnings limit comes off.

For those of us who have continued to work past our full retirement age (FRA), the social security program provides an increase of 8% per year over the FRA benefit up to age 70. Many people are working to that age because they feel too young to retire. Those additional three years of working would increase your benefit by about 24% annually putting you way ahead of what you would get by starting your benefit at the FRA age or if you started your benefits at age 62.

That covers the first shortfall of the 13.3% reduction. The second reduction has to do with the partial taxability of your social security benefits when you are receiving these benefits. This taxability occurs at all ages during your retirement years, however, it also takes into consideration what other taxable income you have each year. For instance, if you are receiving a pension, or working, or have large amounts of interest, dividends or capital gains, or are taking money from your IRA/401(k)/403(b) plans, then you will be paying income tax on a portion of your social security benefits that could be taxed at between 50% to 85% of the total benefits received each year.

This is a situation completely under your control. This is because your pension income is the only income that is outside your control. How much you have in other types of income that goes to your tax return is all up to how you manage your other assets. For instance, if you have planned to get your retirement savings into a Roth IRA rather than in an IRA, then there is no taxable income going to your tax return on withdrawals from the Roth IRA and your social security benefits would not get taxed. A similar plan to harvest investment losses each year and not harvest capital gains in your taxable accounts would limit the amount of taxable income as well as the amount of your social security benefits that are taxed.

The last reduction issue, the annual COLA adjustment that impacts your benefits by 1.4%, is a minor adjustment and pretty much beyond your control. If you take care of the other two issues and their related issues as noted above, this negative reduction should not impact you at all.

There are some other issues that would impact what your action plan should be going forward, but I personally believe that you have plenty of years left and viable options available to you that will limit how these reductions will impact you that did not impact your earlier counterparts. Here are some of those issues:

  • You ultimate monthly benefit is based on the high 35 years of your earnings during your entire work career. If you continue to work into your late 60s you will continue to add years of higher earnings in more recent years that will replace the years of lower earnings in your younger early years of your work career.
  • The later you wait to start your benefits, the higher the monthly benefit will be for the rest of your lifetime. The benefit at age 70 is almost twice as large as what the benefit would be if you started receiving benefits at age 62. This is before the annual cost of living adjustment is factored in to the calculations. If you believe you will live into your late 80s or longer, then you want to wait longer to start your benefits.
  • The $1,000 monthly benefit is what the average worker will receive. If your annual wages have been at or near the annual wage limit ($106,800 for 2011 vs $97,500 in 2007), you can expect your monthly benefit be almost twice the $1,000 used in this blog.
  • If you have no pension, which is where most workers are today, then the amount of taxable income really comes down because all the other income items are under your control that would impact the taxability of your social security benefits.

I encourage my clients to review how much they put into their 401(k)/403(b) each year. Be sure to put enough in to get the employer match, which is free money. Then you should be sure to fund a Roth IRA or add to your taxable investment accounts where you have more control over your taxable income in retirement. I also provide them with a game plan for converting their IRA/401(k)/403(b) investments into a Roth IRA and pay the taxes on the conversion before they get to the point in time when they are receiving the social security benefits. This helps to reduce the potential taxing of the social security benefits as well as limiting the taxability of the future growth of the money they have converted to or contributed to the Roth IRA.

Remember that at age 70 ½ you have to start taking withdrawals from your IRAs/401(k)/403(b) type assets even if you do not need that money to meet your living expenses. This will, in most instances, cause your social security benefits to be taxed as well. This would not happen if that same money was in a Roth IRA because you used the conversion provisions to get those dollars into the Roth from your IRA and the Roth is not subject to the minimum annual withdrawals that an IRA is.

By annually reviewing your financial plan and adjusting the actions you need to take to have control over how you live the many years of your retirement, these reductions in your social security benefits should have a small impact on what you need to do during your remaining working years to save more money. In addition, the amount of money you have to spend during your retirement years will be only slightly impacted if you implement the type of ideas noted above. Proper tax planning will save taxes and that may very well cover any reduction in the social security benefits you receive.


Francis St. Onge, CFP®
Total Financial Planning, LLC
Brighton, MI


Rebels Without a Cause? Maybe Not … (Part 2)

Rebels Without a Cause? Maybe Not (Part 2)Read Part 1 of Rebels Without a Cause?


Social Security today is ‘means’ tested in that your benefit payments, which are otherwise income tax free, become subject to inclusion in income for taxation purposes at $25,000 or $32,000 depending on your filing status.   Furthermore, anywhere from 50% to 85% of your benefits could become subject to taxation.  So someone in the 35% marginal income tax bracket could lose, have to ‘repay’, up to 32 cents (.35 x .85) of each social security dollar of income through taxes owed on that otherwise income tax free income.  Social Security may also have to be ‘repaid’ if you continue to work ‘under full retirement age’ (FRA) and are drawing socials security benefits. You have to pay back $1 in benefits for each $2 in earnings.  Another form of ‘means testing’ might be to preclude benefits if someone’s net worth exceeded some number.  

What do you think is fair as a policy of social security benefits qualification if we were to have some income or net worth threshold for disqualification?  Not sure if that would be ‘fair’ to someone who ‘paid’ in but, your thoughts? 

If we consider that those who are earning under the social security taxability income levels ($25K/$32K, respectively), probably fall into the 50% of seniors whose social security benefit income is about 85% or more of total household income in retirement, it would be unfair to consider taxing any of their benefit as those seniors are already stretching retirement dollars.

So, above those levels what would you change?   Fully taxable social security benefits if income (AGI) in retirement exceeds $100,000, $250,000, $500,000 or stay at 85% maximum taxable no matter what level of income is earned on the tax return?


We are living longer. When social security came into existence life expectancy was the age benefits started – that would be about 87 today!   Recognizing life expectancy increases, the full retirement ages were recently raised based on age of birth.  Today you need to be born before 1937 to get a full age 65 retirement benefit.   For those born 1960 or later you must be 67 to be at FRA.   Some propose an age for full retirement to be indexed to life expectancy.   

What is a ‘fair age’ to retire in today’s World and how would you see future adjustments to retirement age made?  

If you were going to change the retirement date, how soon would you like to see those age changes take effect?   Remember, without passing financial judgment on another’s ‘life saving’s skills’, if someone were planning on taking age 62 social security benefits in two years because they required the cash flow and someone now tells them that they won’t be eligible for 3 (age 65 minimum age rather than 62), 5 (age 68 minimum) or 7 (age 70) years, how might you want to ‘allow’ exceptions for someone having to wait that extra time for a new FRA?   

Today, if you physically cannot work you can get full retirement at any age subject to strict disability rules for ‘cannot work’.  But what if someone was financially drawn down (chronically unemployed or had a devastating medical expense,  for example) and required those social security benefits for cash flow needs that they otherwise might not qualify for and get from other subsidies and aid programs available to the poor or indigent, just to ‘survive’.  Would you consider an-other-than ‘physically’ disabled criteria for benefit qualification in extreme cases because of a Social Security Reform transitional law change to providing social security benefits?     

Without the benefit of CBO number crunching I was thinking something like this as a ‘Boomer’ contribution –

(1)    Starting in 2012 (that way if we use the Mayan calendar this whole discussion is mute, just kidding), to use a date to have us ‘Boomers’ make our contribution, full retirement age (FRA) is age 70 for everyone born in the 1900’s.  For those born in 2000 or later retirement age is 80 and for both year of birth age groups retirement age will be life expectancy adjusted annually.

(2)    In 2012 if you retire at today’s FRA age or later (those FRA ages that are a function of your year of birth under today’s laws mentioned earlier), you will get 85% of your age 70 full (new law) FRA for lifetime benefit (that which you would have received under today’s benefit formula at today’s age formulas).  For example, if you want to start your FRA benefits as calculated under today’s system, say $1700, if you retire after 2011 but before your age 70, you would only get 85%, or $1,445.   Perhaps for each year you postpone an early age 70 FRA you would increase that 85% by 3%.   Again, we have no benefit of number crunching to weigh the cost/benefits, so we are conjecturing about policy design to make goals.

(3)    In 2012 if you elect the early retire age (the current age 62+ option) option you will get 50%* of your currently projected earlier than FRA benefit.   For those that are insolvent at the time of this law change, the transitional rule would allow for the full current earlier-than-FRA-benefit if the retiree elects the earlier social security eligibility date.   This transitional rule would apply for 8 years.

What is your opinion of an equitable transitional arrangement to your suggested retirement ages?

[* Note: currently – age 62 benefit is about 70% of FRA benefit]


Certainly don’t want to limit the debate here.  However, if we dialogue from the premise that social security should be a ‘safety net’ and not a ‘retirement plan’ how would your opinion of privatization of social security, in general, change, if at all? 

Many studies have shown that the ‘average’ retirement plan investor underperforms the market.  Pension plan studies show that retirement account assets are many times under ‘allocated’ or too much in ‘safe’ investments, meaning most often, fixed income. Certainly there are many examples of sophisticated or just plain old good and diligent investors out there, who, without question, do it better than, many times, professional advisors!

What do you think about privatization, if we argue from a ‘safety net’ perspective of social security benefits (minimum income to any citizen who had worked and qualified for a benefit) rather than another ‘retirement’ plan source perspective?  Should individuals be allowed to invest their social security contributions themselves?  If so, all it, part of it, or?

If a private account did underperform, or worse yet, failed (owned all Lehman bonds, for example), should the social security system have provisions to ‘hardship’ the private account holder/investor in?  If not, might municipalities and states, because of a lack of a ‘federal safety net’ be burdened with elderly support and living needs issues for the impoverished in their localities? 

With what the government collects, if there was no individual investing allowed, how should it be invested by the government? ‘Age’ portfolios with blends of equities and bonds becoming more conservative with age – sort of ‘automated’ invested?   Or, only fixed income government securities specifically invested and not available for general government spending?

Who (or how) should get the government contract to invest in equities if we allowed equity investments by the social security administration?  Again, not talking individual privatization/investing, I am talking about the government’s investment of your social security contributions funding those future ‘safety net’ needs.  Do you think the government investment and subsequent divestiture of ‘equity’ assets would cause equity markets inefficiencies or disequilibrium?


Obviously this is not an all-inclusive discussion of the myriad of issues involved in Social Security and Medicare Reform.  I hope that it does create discussion and, at least, some reflective perspective, on this most important matter.  However, we should remember, this should not minimize the importance of the need to be prepared to move beyond discussion to a place of common-ground-seeking and on to constructive and compassionate reform.  To quote someone and they weren’t from Houston, ‘we have a problem and the problem is us’ – Boomers!   We are the bubble putting strains on the system, even pre-wars and pre-financial crisis, Social Security and Medicare Reform was a looming issue.  Our forefathers built a system for our parents to survive their days with – I am confident that our children and grandchildren will be able to say we did the same!  What say yee … Are there any Rebels out there willing to take up a cause?

Learn more about the options to fix Social Security by visiting FPA’s Social Security Predictor.

David Bergmann, CFP®, EA, CLU, ChFC
Managing Principal
The David Bergmann Group
Marina Del Ray, CA