Social Insecurity


by Bellwether Capital Management LLC

Social Security misunderstood

Many Americans expect Social Security benefits to be the largest component of their retirement income. And yet many don't clearly understand the topic.  While Social Security may seem simple, it can actually be quite complicated. For example, many people don’t know there are several hundred different ways to collect benefits.  Depending on circumstances and how benefits are claimed, the difference in payout could amount to hundreds of thousands.  


That complexity combined with the uncertainty surrounding the program’s well-being can leave many people feeling rather insecure about Social Security.  We'll try to help in this article by clarifying what's happening with Social Security and sharing some ideas for maximizing benefits. 

What’s the matter with Social Security

To start, we should understand Social Security was designed to supplement retirement income, not to be its main source. In that sense, the real problem isn’t Social Security doesn’t provide enough for retirement, rather it’s many people haven’t saved and invested enough for retirement. But even if Social Security payments were enough, the reality is the program is on an unstainable path that will result in insolvency if left unchanged.  Here are some basic facts about the program according to the Social Security Administration (SSA).

  • The Social Security Program (represented by OASDI Trust Fund assets) has collected less in tax revenue than it distributes in benefit payments since 2010.

  • Based on current projections OASDI Trust Fund assets are expected to be exhausted by 2037.

  • At that point, the Social Security Program would be unable to meet its payment obligations and be technically insolvent.

SS Deficits / GDP


Source: Social Security Administration,

There are at least a couple of reasons for the insolvency issue.  First, the ratio of people paying into Social Security versus receiving benefits from the program has decreased over time.  For example, in 1950 there 16 workers paying into the program for every one beneficiary taking out.  By 2013, that ratio fell to 2.8, and by 2033 it’s expected to be 2.1 (shown below).   This ratio reflects a demographic trend that is not abnormal.  As a country develops the population tends to have fewer children, the average age increases, and the labor force reduces in size, relatively speaking.


Source: Social Security Administration, Merrill Lynch

Second, the SSA simply bit off more than it could chew. The SSA overpromised benefits and will likely underdeliver.  In the administration’s defense, when the program was created in the 1930s no one could have accurately predicted, or even imagined, what demographics would look like in the 2000s.  Regardless, whatever the sustainability assumptions were back then are simply incorrect today.

What are the implications

As of now, 2037 still seems like a long way away. This is probably why policymakers have been kicking the unpopular can of worms down the road.  But eventually, it must be opened and realistically there are only so many ways to address the unpleasantry -- reallocate revenue, raise taxes, or cut benefits.  This points to a few likely implications.

  • We should expect changes to the program. Despite all the feet-dragging, policymakers will be forced to act because ignoring the problem to the point of implosion just isn't a viable option regardless of which political party is in control. And since policy changes take years to implement, we should hear about them sooner rather than later. 

  • Not everyone will be impacted.  Those already receiving benefits and expecting fewer than 18 years' worth are least likely to be impacted. Taking away vested, current benefits would be like trying to take fresh meat from a lion (versus candy from a baby) and would likely result in political suicide regardless of which party it comes from.  

  • Everyone else should brace for impact. Unfortunately for everyone else, the most likely outcome is to simply pay more and get less relative to prior beneficiaries (a combination of higher taxes and lower benefits).  No, it does not seem fair, but it is what's realistically needed to keep the system afloat. 

These will be difficult choices to make and implement. We don't envy those tasked with the duties and don't have any recommendations for them. What we do have are some ideas that we can use to maximize our benefits regardless of what does or does not happen to Social Security.  

Maximizing benefits

1. Wait to take benefits

This may seem counter-intuitive to some. If we fear the program will fail, shouldn’t we take what we can while we can?  Not only would that “run-on-the-bank” mentality make things worse for everyone, but total failure is also highly unlikely.  Why plan the rest of your life based on the least likely outcome?  The most likely outcome is a modified version of the program where we pay more and get less. Regardless of how that plays out, waiting to receive benefits will likely result in higher payouts versus taking them early. For example, consider someone with a full retirement age of 67 (FRA).  If that individual chooses to start Social Security benefits early at age 64, the benefit could be reduced by over 20%.  On the other hand, if that individual waits to age 70 the benefits increase by 24%.  Ultimately, whether to wait also depends on other circumstances like the need for income, life expectancy, health, etc.  But all else equal, it can pay to wait. 

2. Increase earnings history

Social security benefit amounts are calculated based on time as well as earnings history (assuming those earnings pay taxes into the system).   Workers basically need a minimum of 10 years of eligible earnings history to qualify for personal benefits.  However, benefits are calculated based on the highest 35 years of earnings history.  Those with fewer than 35 years of earnings history get “zeroes” for the empty years, so simply accumulating 35 years of earnings history can help. The next step, painfully obvious, is to increase those annual earnings!  There are almost always ways to do that -- over-time, a promotion, second job, or side business. Often it's not the opportunity that's missing, but willingness.  For motivation, remember increasing earnings today will not only help right now but help for an entire lifetime through increased benefits (and hopefully increased savings too). 

3. Coordinate benefits

For married couples, there are two benefit start dates to decide on and that can cause confusion over who should do what when.  Obviously, both spouses waiting to claim would result in the highest payouts.  However, often times, it isn't practical for both spouses to wait.  In that case, one approach is to compare earnings histories and benefit amounts.  If one spouse has a higher earnings history and benefit amount than the other, it can make sense for the higher benefit spouse to delay benefits while the lower benefit spouse starts first. This is because the higher benefit amount will grow at a faster rate than the lower benefit amount, maximizing the payout not only for the spouses but for potential survivors as well.

4. Claim spousal benefits 

For married couples, even if one spouse has not worked, that non-working spouse can still receive spousal benefits.  The non-working spouse (Spouse A) can receive up to one-half of the working spouse’s (Spouse B) benefit.  Spouse A, however, cannot receive benefits until Spouse B has also started claiming benefits.  In addition, if Spouse A was working but earned less than 50% of Spouse B’s income, Spouse A could choose to take the higher of Spouse A’s personal benefit or 50% of Spouse B’s benefit.   The bottom line is spouses may be eligible for benefits even if they have little to no earnings history.  Keep in mind similar rules apply for reductions in benefit payments when starting early. 

5. File a restricted application 

In 2016, a popular social security loophole for married couples known as “file and suspend” was closed.  However, a modified version of the loophole known as a "restricted application" could still work for those born on or before January 1, 1954.  Spouse A files for full-benefit at FRA while Spouse B (also at FRA) files a restricted application for spousal benefits only.  This would enable the continued growth of Spouse B’s personal benefit.  Keep in mind this will not work for those born after January 1, 1954, because “deemed filing” rules will apply.

In summary 

We’ve only scratched the surface of Social Security benefits in this article.  There are countless other situations including minor children, dependents, divorce, disability, widows and widowers, and others that we have not considered.  The combined result is hundreds of different scenarios.

Regardless of what you know or how you feel about Social Security, it only represents one piece of your overall finances.  With that in mind, the most important step towards planning for your future is to start with a clear understanding of your needs, goals, and circumstances.  From there, you can design a personalized strategy that includes not just Social Security but any other relevant financial considerations. 

The best time to start planning would have been yesterday, but today is still better than tomorrow, so don’t wait another day.  If you’d like assistance, contact Bellwether Capital Management LLC (BCM) for a complimentary review.  You’ll consult with a knowledgeable and experienced adviser who will answer your questions and get you moving in the right direction.  There’s no cost but only so much time is available for free reviews.  So enter your info below to claim yours now.

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Bellwether Capital Management LLC and its representatives do not provide tax, legal, or insurance advice.  This article is provided for informational purposes only and does not represent advice of any kind. While the information provided is believed to be correct its accuracy is not guaranteed.  You should perform your own due diligence and consult with relevant professionals to determine if and how this information can be used.  Furthermore, you release Bellwether Capital Management LLC and its representatives from any harm or liabilities connected to your use of this information. 



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