CONSUMERS

Some ideas to enhance Social Security benefits for the most vulnerable retirees

The Republic | azcentral.com

Social Security faces a looming funding shortfall roughly 15 years down the road. The program will survive at that time, even assuming no reforms are enacted to shore it up, but benefits could be cut by more than 20 percent across the board.

Despite that dismal backdrop, several proposals continue to be circulated that would enhance benefits for the most vulnerable groups of beneficiaries. These changes wouldn't be free and could add to Social Security's funding deficit, though the costs could be offset in various ways. Some might enjoy bipartisan support.

As discussed in a series of briefs by the Center for Retirement Research at Boston College, one proposal would provide enhanced benefits to the elderly at or around age 85, when financial vulnerability increases.

This could be done by changing cost of living adjustment for people in this group, recognizing that health expenditures tend to escalate at advanced ages. Or people in this group could be given an automatic benefit increase.

Another proposal would provide credits for certain beneficiaries, often women, who took time off from work to care for children or the elderly. The credits would result in higher Social Security benefits for these individuals.

Another idea would provide enhanced benefits for widows, which can be accomplished in various ways, and yet another proposal would bump up the benefits of retirees who earned very low wages over their lifetimes (and qualified for low Social Security benefits) to keep them out of poverty.

"For a number of years, people have been looking at these small modernization benefit increases that would help certain groups," said Andrew Eschtruth, associate director for external relations at the retirement center and co-author of some of the briefs.

For example, the recently introduced Social Security 2100 Act, favored by Democrats, would include some provisions including an increase in minimum benefits for the poorest Social Security retirees. Eschtruth considers that idea as having the broadest support across political parties.

The various enhancements might add anywhere from 14 percent to 30 percent to Social Security's deficit, assuming they were all adopted, which is unlikely, according to Boston College. But some of the benefit enhancements could be offset by reductions in other benefits or changes such as slightly lowering COLAs for everyone. Still others might be duplicative, such as the proposals to help widows who are also over age 85.

"It's not necessarily the case that they'd all be adopted," said Eschtruth, "and some are relatively inexpensive."

An incentive to delay Social Security

Financial advisers routinely recommend that people delay claiming Social Security benefits past age 62, when they first become available — advice that many people ignore. But if the Social Security Administration offered an incentive to delay, such as a small lump-sum payment, would more people be willing to do so?

That's one issue discussed in an academic paper authored by researchers at UCLA and City University of London. The researchers suggested that the Social Security Administration might want to offer a small lump-sum payout at age 62 to encourage people to hold off on claiming their regular benefits until a later age. The rationale for delaying is that beneficiaries who wait receive higher monthly benefits later.

It's hard to say whether the Social Security Administration or Congress would ever adopt that sort of policy, let alone how much the payment might be. But people in their 60s could do it on their own by withdrawing some of their personal nest-egg money earlier than planned, while delaying Social Security.

There might be solid reasons to do this anyway. For example, tax rates currently are on the low side for investment withdrawals, whether taken as ordinary income or long-term gains. Tax rates might not remain this low down the road.

But the main justification for taking or receiving a small lump sum around 62, according to the researchers, could be psychological. People who don't take Social Security at 62 run a risk, however small, of dying before realizing any benefits. This concern almost certainly crosses the mind of anyone contemplating when to start Social Security. By taking or receiving something as soon as you can, you could minimize this possible source of regret.

Check your odds of retirement success

Retirement planning is a complicated topic, yet the Vanguard Group has a free online calculator that helps to clarify important factors that can greatly affect your financial success, or lack thereof. The calculator provides a vision on whether you're currently on track and show how various changes can affect your long-term outlook.

The "retirement nest egg" calculator is easy to use but sophisticated, running 100,000 computer simulations based on past financial-market returns to estimate the probability that your money will last as long as you desire.

Users input just a handful of variables, including current savings balance, mix of stocks/bonds/cash and yearly spending amounts. The beauty of the calculator is that it easily allows you to change each input to see how this affects the long-term forecast.

The calculator doesn't cover every contingency, such as the possibility that a large unreimbursed medical expense might soak up tens of thousands of dollars in retirement. Still, it is useful. For example, it shows that relying more heavily on stock-market investments in many cases can enhance your probability of success over multi-decade periods, even though stocks are inherently volatile in the near term.

The calculator can be found at vanguard.com, under the "retirement plan participants" section. Once there, go to "tools and calculators," then select "retirement nest egg." You can access the calculator without having a retirement plan through Vanguard.

Reach Wiles at russ.wiles@arizonarepublic.com or 602-444-8616.

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