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Headlines are dominated by speculation that Social Security is nearing bankruptcy. This idea is naturally worrisome for many retirees and those who will soon retire.
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Among the possible suggestions to address the funding issue is a recent proposal to place a cap on the amount of money some recipients will receive. Per Committee for a Responsible Budget (CRFB), “The Six-Figure Limit (SFL) will set a $100,000 cap on the total benefit a couple retiring at the Normal Retirement Age (NRA) can receive from this year.” If you are single, the limit will be $50,000 annually.
Although this proposal is not law, here are some things retirees can consider doing right now.
Understand your exposure
Not every recipient is exposed to a potential SFL. According to the CRFB, 0.05% of couples will be affected at first. Such an impact would affect only the top tier beneficiaries and not ordinary retirees.
using tools like social security quick calculator This can help Americans understand their anticipated benefits if they are not already on Social Security. Benefits are based on lifetime indexed earnings, so if you haven’t been earning high income throughout your career you won’t even get the benefit.
Consider Your Filing Timeline
Delaying claiming Social Security is a good way to maximize benefits. Per social Security Administration (SSA), delaying claims after passing full retirement age (FRA) adds 8% annually to benefits until you reach age 70.
Recipients near the potential threshold may not receive much benefit from the delay. Consider coordinating with your spouse on when to claim or analyze what you receive. If delaying puts you at risk, you may consider making a claim earlier.
Rebalancing Retirement Income Sources
One potential limitation could lead people with higher incomes to view Social Security differently as a supplement, nothing more. Reason. For affected Americans, greater reliance on tax-advantaged retirement accounts such as 401(k) plans or IRAs may be helpful.
However, it may not meet your entire needs in retirement. Building a dividend portfolio or building a bond ladder can all help create income streams in retirement to compensate for a potential loss in profits.
Work with a financial advisor
Retirement planning typically involves many moving parts, and claiming Social Security is an important part of it. Working with a financial advisor now provides an objective look at the potential consequences of SFL on your situation.
A financial advisor can also stress-test your portfolio in light of benefit cuts, taking into account market fluctuations, longevity risks and increased health care costs. They can also help manage your portfolio to minimize tax consequences.
SFL is not a given, but it is a possible reality given the looming bankruptcy and policy discussions. High income earners can benefit themselves by researching how such action would limit benefits. Acting ahead can give you more control over your financial future.