The Baby Boomer's Guide to Social Security

Best calculators and sources of information

Start with the Social Security Administration and its Web site, ssa.gov.

The calculators alone are worth the visit. Three benefits calculators -- "Quick," "Online" and "Detailed" -- estimate payouts using different retirement dates and levels of future earnings. (Click on "Calculate your benefits" on the home page.)

In addition, an "Earnings Limit" calculator illustrates how a salary -- if you file for benefits before full retirement age and are still working -- might affect your monthly check from Uncle Sam. A "Retirement Age" calculator shows how retiring early reduces your monthly payout (as a wage earner or spouse). And a "Break-Even" calculator shows the age at which the accumulated value of higher benefits -- for a person who claims Social Security, say, at age 66 -- will start to exceed the accumulated value of lower benefits for a person who opts for Social Security, say, at age 62.

The site also provides extensive lists of frequently asked questions in 24 categories; offers access to dozens of forms and publications; and, perhaps most important, allows you to perform a number of tasks online -- including filing for benefits (and, thus, avoiding a trip to the Social Security office). In all, a very valuable tool.

Another useful resource is analyzenow.com, a Web site devoted to retirement issues. Started by Henry K. "Bud" Hebeler, a retired aerospace executive and author of two books about retirement planning, analyzenow features a number of helpful articles about Social Security and two calculators that can help users determine the best age to file for benefits.

Two other online resources: The National Committee to Protect Social Security and Medicare, a Washington advocacy group, has a spot on its Web site called "Ask Mary Jane" (www.ncpssm.org/maryjane). There, you can email a question to Mary Jane Yarrington, a congressional caseworker who joined the group in 1986 as a senior policy analyst. (Before you write, check the archives for earlier questions and answers.)

Second, Stanley A. Tomkiel III, a New York lawyer, is the author of the "Social Security Benefits Handbook" -- the contents of which are available free at socialsecuritybenefitshandbook.com.

Finally, if you prefer print, Mr. Matthews, the San Francisco lawyer, is co-author of "Social Security, Medicare and Government Pensions," one of the best general guides to the program.

Biggest myth -- and most misused words

The biggest myth is that Social Security will go "broke" or "bankrupt" in coming decades.

The Social Security Administration, in its annual report to Congress this year, identified three important dates regarding the health of the program. First, starting in 2017, the agency will begin paying out more in benefits than it collects in revenue. Second, in 2027, Social Security will have to tap the principal in its "trust fund" (its savings account, if you will) to meet its monthly obligations. (The trust fund itself is a flash point in debates about the health of the program. Some observers, including President Bush, say the fund, which lends excess revenue to the federal government and receives special-issue bonds in exchange, is simply a box full of IOUs. But it's a safe bet that when Social Security needs to draw on the trust fund, future Congresses and presidents will make sure the Treasury doesn't default on those bonds.)

Finally, in 2041, the trust fund will be exhausted, at which point the agency will be able to pay only about 75% of promised benefits.

It's certainly not a pretty picture. But at no point will Social Security collapse. Uncle Sam, it's safe to assume, will continue to collect taxes in 2041 and beyond. Part of that revenue will go to Social Security, which will continue to write checks. Again, starting in 2041 (as things stand now) beneficiaries will wind up with payouts worth 25% less than current rules call for. And that's grim.

But broke? Bankrupt? No.

Best source of information on how to fix Social Security

Earlier this year, the Center for Retirement Research at Boston College published "The Social Security Fix-It Book." The cover of the 52-page booklet describes it as "everything the earnest but over-burdened citizen needs to know. Cheerfully narrated and handsomely presented."

That quirky beginning belies what follows: the single best guide we've seen that explains why Social Security is in the mess it's in -- and the leading proposals for restoring it to health. You can download a copy free at crr.bc.edu. Keep it handy when presidential candidates hold forth on their plans to fix Social Security.

Most arcane, but important, debating points

Speaking of presidential politics, the following issues could well figure in the fine print of any "solutions" involving Social Security. Depending on a candidate's stance on these issues, his or her particular solution could end up sounding very painful -- or just painful. Try dropping these nuggets into the conversation at your next dinner party:

Time Horizons: Some policy makers argue that we should look ahead 75 years when estimating the shortfall in Social Security's finances -- in which case, about $4.7 trillion is needed to close the gap. Others argue for adopting an "infinite horizon" -- in which case about $13.6 trillion is needed. (A trillion here, a trillion there...)

Changing Work Force: Some evidence suggests that older workers are remaining in, or rejoining, the work force in greater numbers. If so, and if the trend continues, it could ease (somewhat) the coming strains on Social Security. But there's no telling what baby boomers actually will do in retirement.

Buying Power: Annual cost-of-living adjustments in Social Security are based on the CPI-W, the consumer price index for urban wage earners and clerical workers. But groups including the Senior Citizens League argue that adjustments should be tied to CPI-E, an experimental index for the elderly started in the 1980s. This index tracks expenditures among individuals age 62 and older and better reflects (theoretically) this group's higher spending on health care and other goods and services.

Biggest misunderstanding

The biggest misunderstanding is that your particular tax dollars are being set aside for you at Social Security.

Social Security is not, and never has been, a savings account. " 'Your' money is not in 'your' account," says Dennis Oliver, a retired Social Security Administration manager who now works as a Social Security consultant in Cookeville, Tenn. Rather, Social Security is largely a pay-as-you-go system, in which your tax dollars are used to pay current benefits. (Since the mid-1980s, Social Security has been running annual surpluses that have gone into the trust fund.)

Consider Ida May Fuller, who received the very first monthly Social Security check in January 1940. She was 65 at the time. Ms. Fuller worked for three years under Social Security before retiring, and the taxes on her salary totaled $22.54. By the time she died in 1975 at age 100, she had collected $22,888.92 in Social Security benefits.

Biggest surprises

In 1983, Congress raised the age at which people qualify for full Social Security benefits. Once pegged to age 65, the threshold is increasing gradually until it hits 67 for workers born in or after 1960.

The problem: According to a survey earlier this year by the Employee Benefit Research Institute, 30% of all workers think -- incorrectly -- that they will be eligible for unreduced benefits at age 65. Worse, 21% think they will be eligible for unreduced benefits before age 65.

Separately, for all the discussion about claiming benefits at age 62 or at full retirement age, the decision isn't an either-or proposition. You can take benefits at any point -- any day, month or year -- after 62. The longer you wait, of course, the smaller the reduction in your benefits.

If your full retirement age is 66, and if you file for benefits at 62, your monthly check will be reduced about 25% from your full benefit; file at 63, the reduction is about 20%; file at 64, the reduction is about 13.3%; file at 65, and the reduction is about 6.7%.

Best day of the year to visit a Social Security office

The Friday after Thanksgiving. Yes, the agency's local offices are open on that day -- and are usually very quiet.

--Mr. Ruffenach is a reporter and editor for The Wall Street Journal in Atlanta and the editor of Encore.

Write to Glenn Ruffenach at encore@wsj.com

Page 1 | 2