Our own Brian Littlejohn recently answered a couple of questions on Social Security posed by a reporter at Kiplinger’s Personal Finance Magazine. A transcript of the questions and Brian’s answers are below:
REPORTER: Should retirees and near-retirees be concerned about the coming shortfall in Social Security funding? Could expected benefits be trimmed?
BRIAN: If a retiree or near-retiree doesn’t have other significant sources of income to rely on during retirement, they should definitely be concerned about the potential shortfall in Social Security funding. Social Security benefits could be reduced by 20% or more beginning in 2035 if Congress doesn’t take action. There’s certainly no guarantee that they’ll do so; the last time that Congress acted to shore up funding for the program was back in 1983.
REPORTER: How much weight will Social Security benefits have in retirees’ overall portfolio as a secure source of income, given a volatile stock market and low interest rates?
BRIAN: Today’s recessionary and low interest rate environment have made Social Security benefits even more important for recipients. This is because bonds, CDs, and even savings accounts pay a reduced amount of interest when rates drop. Additionally, recessions often cause companies to cut or eliminate the dividends they pay to shareholders. Both of these effects can reduce the amount of income retirees receive from their investment portfolios.
REPORTER: What Social Security claiming strategies make the most sense in the current economic environment (for example, claiming at age 62, 70 or somewhere in between, timing benefits in conjunction with spouse, etc.)?
BRIAN: Conventional wisdom says that as long as a person is healthy, waiting until age 70 is optimal in order to receive the maximum amount of money from the Social Security program. However, if benefits are going to be reduced due to the program being underfunded, drawing earlier might make more sense. I suppose you could think of this as a “get ’em while you can” approach.
To ascertain which specific claiming strategy is most likely to maximize your Social Security benefits, speak with a CFP® professional and/or visit www.ssa.gov.
REPORTER: Anything else retirees and near-retirees should be thinking about today when it comes to Social Security benefits?
BRIAN: Whether its disappearing Social Security benefits or corporate pensions, investors are being asked to take on more responsibility for funding their own retirements. This increases the importance of (1) saving adequately and (2) investing wisely. If investors can’t successfully handle both of these tasks on their own, they’d be wise to enlist the help of a CFP® professional or a CFA® charterholder.