Will It Be There When You Get There? By Jodi Heuvers Mature Advisors February 2005

The oldest baby boomers will turn 59 this year. In just a few short years around 2008, the first wave of these baby boomer will become eligible for Social Security (S.S.) retirement benefits.

A brief description on S.S. for the Baby Boomers First, it’s been announced that the full retirement age is going up. Retirement age has been 65 for the last six decades of the program; but now the age at which a person can begin collecting full S.S. benefits is on its way up to 67. This increase was part of the S.S. Amendments of 1983, not coming into action until now, in order to give people enough time to prepare. Second, boomers should know that although Congress changed S.S.’s full retirement age, it did not change the early retirement age, which remains 62. While the age has not changed, the reduction in benefits for taking retirement at 62 is gradually increasing from 2% to 30% over the next 20 years. Third, there are certain facts that female baby boomers need to be aware of. Boomer women are more likely to get higher benefits on their S.S. record than on a spouse’s record. Boomer women are also more likely than earlier generations to have been divorced. Those female baby boomers that are married are likely to outlive their husband as well. Every one of these situations can effect female baby boomers’ S.S. entitlement.

Will There Be Enough? The concern is not only whether or not S.S. will be available; but if there will be enough funds for every one when they become eligible. Solutions have been offered from all sides. The President has recommended things such as private accounts to balance out S.S.. The 35.6 million-member AARP organization, previously an ally with President Bush, helped push through the controversial Medicare law that created prescription drug benefits. They have now broken decisively with him, declaring that they will oppose private accounts that would divert tax money from S.S. “We are dead set against carving private accounts out of S.S. taxes”, says William Novelli, head of the lobby for the Medicare law. “We can fix S.S. without dismantling it, which is what private accounts carved out of S.S. would do.”

Strategies for Change AARP has developed some possible changes after surveying seniors over the past year, as reported in the Wall Street Journal. They are as follows: Raise the cap on taxable wages to $ 140,000 from the present $ 90,000. The present payroll tax of 12.4%, split evenly between employees, is clearly regressive. AARP calculates that this would cover 43% of the projected shortfall over the next 75 years. Raise the retirement age for full benefits gradually to 70 by 2083, for an additional 38% gap. Reduce starting benefits slightly to reflect longer life spans, for another 25%. Increase payroll taxes by one-quarter percentage point each for employees and employees, for another 24%.

Could This Work? Those measure alone would keep the system solvent for more than 75 years. Still, other possibilities exist. These include changing the benefits calculation, modifying the cost-of-living formula, investing some S.S. funds in market index funds and putting new state and local government employees on S.S. A final tip for baby boomers: think online. Most boomers are comfortable using computers to conduct business, so they can expect and appreciate online government services to as well.