As the media dwells on 2016’s coming changes in the administration of Social Security, more forward-thinking financial advisors are acknowledging the alteration but not allowing it to sway their advice to clients.

“Social Security is a distraction from what one really needs to do,” Michael Brady said. He is the founder of Generosity Wealth Management in Boulder, Colo. “The biggest misconception people have about Social Security is that they think it is going to pay out more than it really will. People making $100,000 a year who think they are going to retire on Social Security alone have no idea the cut in pay that would be required if that is their only means of income funding their retirement.”

He encourages his clients to take charge of their own retirement planning because he foresees a “means-based” doling out of Social Security benefits in the not too distant future. Most likely, that’s a good bet to take.

The American Association of Retired Persons, or AARP, which for decades has fiercely defended the right of every retiree to collect Social Security benefits, began discussions regarding both sides of the “means-based” coin through its public policy institute. Rationale that “means-based” Social Security eligibility would allow for those most economically vulnerable to receive the greatest benefit from the financial social safety net is gaining ground.

“If you are successful in your career and earning power, you might be phased out of Social Security and should be investing on your own,” Brady said. “Even if you are eligible for Social Security, the payoff is not that great. Once you add up everything you have contributed over your working years and the taxes you have to pay, Social Security just is not a great return.”
Of course, one cannot opt out of paying into Social Security at this time. But Brady counsels clients to not place a great deal of emphasis on the role it will play in their retirements.

“Your best bet is to focus on what you can control, which is your own investing choices,” he said. Of course, look over the quarterly statement issued by the Social Security Administration to verify your current standing. “Make the best choices for yourself along the way that are independent of Social Security, and that are not based on you hoping that someone in Washington, D.C. is going to make decisions that will help you out.”

“The second biggest misconception regarding Social Security is the idea that each contributor has an individualized account – a sort of government-held savings account – that their payments go into and are held until they are eligible to collect them,” Brady noted.

Not so.

Brady said he often hears comments along the lines of, “Well, I have been paying into this all along,” when clients come to the realization that their contributions to the system are not held in reserve just for them. That is when he has to break the painful news that the Social Security system represents a transfer from the current working generation to the previous working generation – the now retired.

“It is only a promise to pay you something in the future,” he said. “It is not a guarantee.”

That leads to the third biggest misconception: That Social Security will be broke sometime in the future, leaving Gen X and Y, and millennials without the ability to collect. Brady understands this concern, but doesn’t believe it is valid.

“People say, ‘There will be nothing there for me when I get to retirement,’ ” Brady said “I don’t think that is reasonable either. Even all of the dire reports that discuss the need to reduce eligibility still do not talk about Social Security being a zero.”

What Brady does see is that Social Security as it currently is administered is not sustainable. He believes further changes beyond those being implemented in 2016 are inevitable. But he recommends clients take those changes with a grain of salt and not spend much of their time contemplating what the potential effects could be.

“There are an awful lot of speed bumps and variables that will happen by the time many folks reach the age of eligibility,” he said. “And the longer one has until before reaching that point, the more things can and most likely will change with Social Security.”

He still believes in delaying collection until age 70.

For a baby boomer – those born between 1946 and 1964 who in the year 2015 were between the ages of 51 and 69 – Brady said that waiting until age 70 is the best way to get the most out of Social Security.

“Delaying represents an eight percent increase per year for the rest of their lives,” Brady said. “That increased benefit could be very helpful through the rest of their 70s, 80s and even 90s.”
Learn more about Brady’s firm, Generosity Wealth Management, LLC, online at www.generositywealth.com