(Editor’s note: David Reyes is founder of Reyes Financial Architecture of La Jolla, a registered investment advisory firm that acts as a fiduciary and specializes in portfolio risk management strategies, retirement income distribution and Social Security planning. He has been named the National Social Security Advisor of the Year, an annual award given to professional advisors who are knowledgeable and passionate advocates for Social Security education.)
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Last October, Congress quietly — with no discussion in Congress, no congressional hearings and few headlines — phased out popular Social Security claiming strategies such as Restricted Application and File and Suspend. That change — which affects people turning 66 years old after April 30 this year — means fewer claim strategies for retirees seeking to maximize Social Security income, effectively cutting $100,000 from lifetime benefits from a married couple’s sunset years.
I believe this decision was based on one paragraph on page 150 of the 2015 federal budget proposal. The graph said the budget proposed to eliminate “aggressive Social Security claiming strategies, which allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement.”
I beg to differ. Retirees from all levels of income and wealth have already paid for these options. They — the hurting middle class — are the ones who use these types of claiming strategies and are the ones who need it the most. Even if every Social Security beneficiary took advantage of these so-called “aggressive” claiming strategies, it would only affect our federal budget by less than one quarter of 1 percent.
According to the Natixis Retirement Savings Study, baby boomers aged 51 to 69 have saved only 20 percent of the funds they need to retire. This means a married couple has saved an average of $185,000 when spouses will need at least $1 million to carry them through the next 30 years.
Thirty percent of Americans from the ages of 65 to 69 are still in the workforce, according to the U.S. Census Bureau, and that likely means Medicare and Social Security are not covering basic living expenses for our older population.
In my wealth management practice, the majority of clients are engineers, doctors, pilots, educators, police officers and professionals who have been frugal spenders and good savers. On average, a client has about $1 million in assets. These are the people who pack lunches every day instead of eating at restaurants. They go to matinees instead of feature attractions; they save and pay cash for new cars. Yet these are precisely the people who will see their lifetime benefits slashed by 32 percent under this new law.
Baby boomers are part of the Sandwich Generation. They are still supporting millennial children whose college costs rose more than 1,000 percent since 1980 and then found that job opportunities have shrunk from technology gains in the workplace. On the other end, boomers often help support aging parents with long-term healthcare costs as well as daily expenses. Twenty-one percent of U.S. seniors over age 75 still carry a mortgage, compared to 6 percent back in 1989. And after these fiscal responsibilities are over, boomers will need to take care of themselves. By the year 2033, the Social Security program will be underfunded. Social Security beneficiaries will take a 23 percent benefit cut. For some retirees, 85 percent of those benefits are already taxable, too.
What does this mean for people in their 50s today? As fiduciaries, wealth managers focus on maximizing client income. We study tax ramifications regarding 401(k)s, equities and IRA withdrawals to make sure clients know which income to take first to create an integrated, tax-efficacious portfolio. This is a complex process.
The Society of Actuaries reports that only half of Americans meet with some type of financial advisor. Those without a professional to guide them into retirement will either have to become experts on investing and tax law or watch in dismay as their nest eggs shrink over time.
There is no real economic benefit to taking away Restricted Application and File and Suspend. Those of us who take responsibility for our loved ones will spend our assets on them anyway, which means that the 32 percent in “supercharged” benefits we could have had under old Social Security law would circulate within the economy. The amounts saved by this new law will not move the needle on our federal deficit.
We younger boomers have paid into the Social Security retirement system all our lives and should fight for retirement benefits we have paid for and deserve. Surely this issue deserves more fair, comprehensive and creative solutions.