What Baby Boomers Need to Know About Social Security Benefits
The number of Americans age 65 and older is projected to double from 2008 to 2031. The surplus of money paid into the system by boomers will allow it to run into the late 2030s, even though it will begin paying out more than it takes in by 2017. With changes expected in the eligibility and benefits offered by social security, tax and financial planning professionals can expect an increase in retirement planning strategy questions.
As the baby boomer generation reaches retirement age there will be exponential growth in retirement planning concerns and you will need to be aware of the best strategy to deal with them. Here are some tips to help your clients balance living for today, while preparing for tomorrow.
Shortfall not bankruptcy
First of all, make sure that your clients (retirement age and younger) know that the concern about social security is that it will have a shortfall by 2033 that will only be able to pay out 75 percent of the scheduled benefits. Social security funds are not going bankrupt; there will still be revenue from payroll taxes and income taxes on benefits paid to higher-income recipients.
Combine Social Security with personal retirement
The best way to ensure security in retirement is to supplement social security with personal retirement financial investments. Having stable investments and strategic 401(k) plans will help your client to live comfortably in retirement. Developing this strategy may include discussing with your client the possibility of switching their 401(k) to a Roth plan.
If both spouses worked they can receive benefits based on their individual earnings history. But a lower-earning spouse has the option to base their benefit on the higher-earning spouse’s. Either way, if your client chooses to claim benefits before full retirement age they will be reduced. Another option for your clients may be to collect a spousal benefit initially and allow your benefit amount to increase by delaying collection.
Income taxes on benefits
According to the Social Security Administration, about one-third of individuals receiving social security benefits are required to pay income taxes on those benefits. As a tax professional you will need to be aware of whether or not your client’s benefits are taxable, to what extent and how to best prepare for how this will affect their benefit income level.
As an increasing population reaches retirement age you, as a tax professional, will need to know the specific ways to best handle the complicated facets of Social Security benefit management. To learn more about how baby boomers will effect Social Security, sign up for our upcoming webinar Social Security, Medicare, and Prescription Drug Retirement Benefits: What Every Baby Boomer Needs to Know Now (SSRB).