Mike Piper, a licensed CPA and author of the popular Oblivious Investor blog, shares his expertise on Social Security and retirement planning. He discusses the historical evolution of Social Security, emphasizing its complex nature as an insurance program and not just a retirement account. Topics include strategic marital considerations for benefits, the importance of timing claims to maximize income, and the implications of policy changes ahead of the trust fund depletion. Piper also dives into spousal benefits and filing strategies for couples, providing valuable insights for all investors.
Understanding the intricacies of Social Security, including benefits tied to earnings history and claiming age, is essential for effective retirement planning.
The Open Social Security Calculator serves as a practical tool for individuals to explore different claiming strategies and optimize their retirement income.
Deep dives
The Evolution of Social Security
Social Security was established in 1935 and initially provided only retirement benefits, with spousal, survivor, and disability benefits added in subsequent decades. Over the years, Social Security has adapted to changing societal needs, including automatic inflation adjustments introduced in 1972, and modifications in retirement entry age that began in 1983. The program aims to serve as a social insurance mechanism rather than simply a retirement fund, emphasizing that benefits do not solely hinge on prior contributions. This perspective is crucial for understanding the broader role Social Security plays in ensuring financial stability for individuals during their retirement years.
Key Concepts in Claiming Benefits
The amount received from Social Security benefits hinges significantly on individual earnings history and the age at which benefits are claimed. Earnings are adjusted for inflation, with the highest 35 years of earnings used to calculate the primary insurance amount, which determines monthly retirement benefits. Understanding the full retirement age is essential, as taking benefits early results in reduced payments, while waiting until after full retirement age can increase monthly benefits significantly. This creates various strategies for claiming Social Security, where delaying benefits until age 70 can result in up to 75% more monthly income than taking them at age 62.
Insurance Aspects of Social Security
Social Security functions as a social insurance program, providing benefits not just for retirement but also in cases of disability and death. This insurance aspect means individuals can qualify for benefits even without the requisite years of contributions if they have dependents or disabled children. Moreover, spousal benefits allow a lower-earning partner to claim benefits based on the higher-earning spouse's work record, ensuring financial support for non-working spouses. Understanding these provisions helps individuals optimize their financial planning and ensure security for their families.
Utilizing the Open Social Security Calculator
The Open Social Security Calculator is a valuable tool that aids individuals in determining the optimal time to claim benefits by analyzing various claiming strategies. It takes into account both individual's and their spouse's claiming ages to maximize total lifetime benefits. By modeling different scenarios, users can see how various filing choices impact overall income during retirement. Importantly, the calculator also considers factors like inflation adjustments and mortality tables, making it a practical resource for informed decision-making regarding Social Security claims.
Mike Piper is our guest in Episode 7. Mike is a licensed CPA, author of the popular Oblivious Investor blog, and author of many finance and tax-related books including Social Security Made Simple. He is favorite among Bogleheads for his straightforward advice on retirement planning, investing, Social Security and other personal finance related issues. Recently, Mike has been spending a lot of his on his new website Open Social Security and specifically with one of the best online Social Security calculators available - and it's FREE to use!
This podcast is hosted by Rick Ferri, CFA, a long-time Boglehead and investment adviser. The Bogleheads are a group of like-minded individual investors who follow the general investment and business beliefs of John C. Bogle, founder and former CEO of the Vanguard Group. It is a conflict-free community where individual investors reach out and provide education, assistance and relevant information to other investors of all experience levels at no cost.
The organization's free website is Bogleheads.org and the wiki site is Bogleheads® wiki. Bogleheads sites are operated by volunteers who contribute time and talent. Donations help defray operating costs.
Since 2000, the Bogleheads' have held national conferences in major cities around the country and currently meet in Philadelphia in the autumn of each year. There are 56 Local Chapters in the US and three Foreign Chapters that also meet regularly. New Chapters are being added on a regular basis.
This podcast is supported by the John C. Bogle Center for Financial Literacy, a non-profit organization approved by the IRS as a 501(c)(3) public charity on February 6, 2012.
Get the Snipd podcast app
Unlock the knowledge in podcasts with the podcast player of the future.
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode
Save any moment
Hear something you like? Tap your headphones to save it with AI-generated key takeaways
Share & Export
Send highlights to Twitter, WhatsApp or export them to Notion, Readwise & more
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode