Moderator:
Greetings, everyone, and welcome to Viewpoint. Our guest today is Marie Smith, the President of AARP.
Marie Smith: Coming from Hawaii, I'd be remiss if I didn't greet you with a warm Aloha. Welcome to AARP's Retirement Security Forum. This is proving to be such a hot topic that we'll get right into the questions without further comments.
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Hernando, Miss.:
1. Social Security was originally a dedicated fund and should have always remained so. Are there plans to repay to the fund what has been stolen from the taxpayers and placed in the general fund?
2. Why can not the retirement plan for Congress be Social Security rather than a separate plan? They are certainly no better than the rest of us who have worked all of our lives. We older citizens highly resent their sense of self-importance. If they were under Social Security also, we all believe that they would have much more interest in putting Social Security back where it belongs.
Marie Smith: I think that there is a lot of confusion about the money that goes into the Social Security trust fund. I can assure you that your Social Security tax money has not been “stolen.” By law, any and all money that is not needed to pay current Social Security benefits is invested in U.S. Treasury bonds. These bonds are just like those that you and I or private insurance companies and pension funds buy. They earn interest and are guaranteed by the full faith and credit of the U.S. government. The United States has always paid both the interest and the principal of any obligation when they are due. That history is the reason that Treasury bonds are the safest and least risky investment in the world. I have every confidence that the Treasury bonds in the trust fund will be paid in full and on time when they are needed to pay benefits.
A lot of people have heard that Congress doesn’t participate in Social Security and that is not true. I’m glad you asked about it, so I can take this opportunity to clear up this misinformation. All members of Congress and senators pay into Social Security just like everyone else and are eligible for the same benefits. Before 1984 they did not pay into Social Security and did not get benefits, but a law passed in 1983 required all members of Congress, regardless of when they first entered Congress, to participate in Social Security along with all newly hired federal government employees.
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Santa Maria, Calif.:
I'm turning 60 in Oct. and was told I'm eligible for a Social Security widow's benefit. If I receive that prior to retirement will my own pension be reduced? I plan on receiving my own social security at age 63.
Marie Smith: You are eligible for a reduced widow’s benefit at age 60 based on your husband’s earnings. If you decide to claim benefits on your own work record and earnings at age 63, those benefits still will be reduced compared with your benefits if you had waited until you are eligible for full retirement benefits. If you wait until your full retirement age, neither your own nor your benefits will be reduced. When you apply for your own benefits, you will get the higher of the widow’s benefit or your own Social Security benefit, but you can not get both benefits at the same time. Because the exact calculation depends on your individual situation, you should talk with a representative of the Social Security Administration for assistance.
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Statesboro, Ga.:
Why should we be penalized when taking money out of our retirement fund - it's our money! We've worked hard for it and it's ours! Also, our money was put into 401K having paid taxes on it; 2 years ago we had to pull out $30,00 to pay taxes and we had to pay taxes on that the next year! Being taxed three times on the same money is ridiculous!!!! Please do something! Also, there should be no administrative fees for taking it out - does that make sense!!!!! Thanks very much.
Brenda Gruenewald
Marie Smith: Most participants put money into a 401(k) through a "before-tax" salary reduction, so, when they take it out, that's really the first time it gets taxed. It’s important to save through a 401(k) or some other vehicle. Some employers even provide a match so you’re saving even more.
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Canton, Ohio:
My mother wants to put her house into my name because she is getting older. I have a home of my own and I was wondering if it would hurt my Social Security disability. I am disabled for mental health reasons and have been for 2 1/2 years.
Thanks.
Marie Smith: Social Security Disability Insurance is not means tested, so your benefits will not be affected if your mother puts her house in your name.
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Spokane, Wash.:
1. Financial representatives tell us to buy and hold, dollar cost average, diversify our portfolios
and all will be well. When the market falls they urge that it is a buying opportunity. Even when
asked about how to protect your nest egg, I have never had a stop loss recommended. They never
told me to me to go to cash, or invest in real estate, etc. Millions of people have lost trillions
following their advice? How do we stop this advice, stop the bleeding and rocover the
damages caused by it?
Marie Smith: Finding a financial planner is important, but sometimes hard to do. AARP has some good advice about how to find and monitor financial planners and stockbrokers. Visit Financial Advisers to find articles on how to choose planners and brokers and how to file a complaint. There's even a lawyer's bar association for people who have complaints about brokers. The Public Investors Arbitration Bar Association (PIABA) can be found here. They try to help people who have a complaint against a broker and are compelled by the brokerage agreement to settle their dispute through arbitration.
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New York, N.Y.:
I am at retirement and have suffered a tremendous loss in the markets in the past four years. Thank heavens for my Social Security. Without that I would be in terrible straits. How can anyone think that privatizing this program would improve it. It has proved to be among the best and most efficient of government programs. If anyone has any other comment I would like to see it.
Marie Smith: Thank you for your statement. AARP feels strongly that we need Social Security as the foundation for our retirement. We emphatically oppose any type of carve out from Social Security. We do support savings in the form of 401(K), and other financial vehicles but in addition to Social Security not instead of Social Security.
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Yakima, Wash.:
Retirement as we currently think of it is outdated. What do you think of "retiring retirement"?
Marie Smith: For many, it's a great idea – particularly since people are living longer. But for many others, retirement isn't possible. Some may not continue in their traditional jobs, but will become self-employed, involved in jobs that peak their interests, work part time, or do volunteer work.
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Dayton, Ohio:
I'm retired at age 60 with enough assets to live on. We don't have long-term care insurance and the cost of it would derail our current retirement plans. I'm not concerned about leaving an inheritance, so what is your advice on purchasing long-term care insurance?
Marie Smith: This is an issue that should be examined based on your particular situation. Questions to ask might be, could you afford to move to a life care community that includes long-term care? Would it be better to simply pay for long-term care as long as possible and then qualify for Medicaid when your assets reach Medicaid limits? Do you want to, or are you able to offset the costs with part-time employment? Would you qualify for long-term care insurance based on your health history and age? Are their affordable policies that might allow you to cover long-term stays as long as you can fund the short term stays (higher deductibles).
If you need professional advice, try calling the National Association of Personal Financial Advisors (NAPFA) at 1-888-333-6659. AARP doesn't endorse this organization, but it does specialize in finding planners who work for fees only and don't sell products, so the conflict of interest that many planners have in having to sell you something in order to make a living, doesn't affect it.
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Freeport, Fla.:
What part, if any, of Social Security is taxed by federal or state government?
Marie Smith: Certain beneficiaries are taxed at the federal level if their incomes exceed certain thresholds. Single taxpayers with incomes above $25,000 pay taxes on a portion of their benefits, and for those with the highest income the tax rate can go up to 85% of their benefits. The money goes to the Social Security trust fund and sometimes to the Medicare Hospital Insurance trust fund. For couples, the tax starts at $32,000. Some states may also tax a portion of Social Security benefits as well.
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Milwaukee, Wis.:
My wife and I are both professionals and are entitled to the maximum benefit, as a working married couple will we both receive maximum payments?
Marie Smith: Each of you will receive only your own benefits and you will not be able to get any spousal benefits.
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Ferndale, Mich.:
I want to collect Social Security at 62 but can't stop working completely because I need health insurance. How does Social Security make deductions for going over about $1,500 the yearly earnings limit? Can the deductions in benefits be made on a monthly basis or must they be made at the year's end?
Thank You
Marie Smith: If you claim early retirement benefits beginning at age 62 and continue to work, your benefits will be reduced by $1 for every $2 of your earnings over $11,640 for each full year ($970 per month) until the year you reach the full retirement age. During the calendar year you reach full retirement age, earnings up to an annual rate of $31,080 ($2590 per month) are exempt. That year the reduction in your monthly benefits is $1 for every $3 that your earnings exceed the higher limit. These amounts increase every year. Beginning with the month that you attain full retirement age, there is no reduction in your benefits if you are working. While you are working, your monthly benefit check will be reduced to reflect your expected earnings. However, during the first year you are receiving benefits, your monthly Social Security check is not reduced on the basis of your annual earnings, but only if your monthly earnings exceed $970. In addition, you need to let the Social Security Administration know each year what you expect to earn.
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New Orleans, La.:
My 49 yr. old brother is mentally handicapped and deaf since birth. He has been collecting Social Security since our father died when my brother was a child. He is also on Medicare. Would his Social Security or Medicare benefits be affected if he inherited a house and $200,000?
Marie Smith: Your brother is obviously receiving benefits under Social Security because of work by his father prior to his death. Inherited monies, the house and $200,000, will not affect his monthy Social Security benefits nor his Medicare benefits.
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Bethesda, Md.:
I am 55 years old with a husband and two children. I can't seem to keep my credit card costs under control. There is always something that comes up -- school supplies, car repairs, etc. Can you help?
Marie Smith: Taking control of your financial future requires you to manage your credit wisely. While borrowing can help you realize some of your long-term goals, borrowing for day-to-day needs can result in financial troubles. Ideally, pay off your balance each month. If, however, you carry a revolving balance on your credit card, you may be setting yourself up for financial troubles and should:
-pay more than the minimum payment,
-set a monthly limit on your credit card charges,
-avoid making spur-of-the-moment purchases, and
-cut your credit card up or simply do not use it.
Also, how much interest does your credit card charge? You can shop around to find cards with low interest rates and/or no annual fee. And be sure to pay your charges on time so that you avoid paying late fees.
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Owings Mills, Md.:
I am 61 years old. In light of the fact that Greenspan may be raising the retirement age and making changes in Social Security, in general, do you think it would be advisable to take early Social Security at 62 years of age and lock it in, rather than wait a few years and get a higher monthly amount?
Marie Smith: Thank you very much for raising this issue during our discussion. Federal Reserve Chairman Greenspan suggested that the retirement age should be raised and the annual cost of living adjustments for Social Security benfits should be reduced in order to reduce the federal budget deficit. AARP believes that doing this would be irresponsible, and I can assure you that we will continue to oppose such proposals. Social Security is now running large annual surpluses, and will continue to do so for more than 20 years. Social Security is not responsible for one penny of the current large budget deficits, and Social Security beneficiaries should not bear the burden of dealing with it.
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Santa Clara, Calif.:
What is the safest investment for retirement money?
Everytime I think my money is relatively safe the market goes down and I end up loosing money.
Marie Smith: You can consider money market funds and CDs. To check for the best rates, visit this site. You may also want to consider short-term bond funds, but this does involve some risk. Of course, for those who cannot stand any loss of principal, inflation protected government securities could be worth considering. Try here for more information.
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Minneapolis, Minn.:
What is a reasonable assumed rate of return on retirement assets and an inflation rate for long-range retirement planning?
Marie Smith: Unfortunately, I don't know of anyone who can accurately predict future returns. Most advisers I have read about recommend a mix of stocks, bonds and cash, tailored to when you will need to consume the principal, your need for low, moderate or high returns, and the amount of inevitable losses you can tolerate.
Of course, if you are lucky enough to only need to stay even with inflation, you might consider inflation-indexed government bonds, or other federally insured accounts (FDIC).
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Burbank, Calif.:
If my wife takes her social security early (age 62), I understand she will take a penalty for the early start of benefits. However, if later on, say at her full retirement age (65 plus 10 months), she switches over to take half of my benefit, will there still be the penalty on this new benefit, or will she receive the full half of my benefit since that would be greater than her full benefit?
Marie Smith: If she waits to collect benefits on her own earnings record until she is eligible for full benefits, she can switch from a spousal benefit to her own retirement benefit. That benefit will not be reduced because she has been getting Social Security as a spouse. You need to take a careful look at whether her benefits will be higher as a spouse or based on her own earnings. You should consult your local Social Security office about this.
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Cary, N.C.:
I have worked 30 years in Canada and thus qualify for full benefits there and have worked 10 years, full time, in the U.S. Who do I contact in order to find out how to apply for whatever benefits I am entitled to from both countries?
Marie Smith: If your employment in the U.S. has been covered by Social Security for all ten years, you may be eligible for benefits. You should contact the local Social Security Administration office and have them check to see what benefits are payable from Canada on the basis of your earnings there as well as your U.S. Social Security benefits.
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Yardley, Pa.:
Our federal government is rewarding illegal aliens with taxpayer funded education, healthcare, welfare, and most importantly Social Security (SS). Our seniors must work 40 quarters (10 years) in order to qualify for Social Security. However, illegal aliens only need to work 3 years to qualify for this benefit. What is AARP's current and future position in halting these outragious practices?
Marie Smith: First, let me reassure you that illegal immigrants are not eligible for Social Security benefits. Some legal immigrants are eligible for Supplemental Security Income (SSI), a completely separate program that is not funded with Social Security payroll tax money. Further, no-one except spouses and depends of workers who are already covered by Social Security can receive benefits without working and paying into Social Security for at least 40 quarters (10 years).
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Washington, D.C.:
Having started saving very late in my career, I doubt my 401K, IRA and small pension will help support things I'm used to having and doing. I own a high-end condominium that I have no intention of leaving to retire elsewhere. In this case, should I consider a reverse mortgage on the condo as a retirement income vehicle? What are the pros and cons? Thank you.
Marie Smith: Reverse mortgages are a hot topic lately. A reverse mortgage is a loan against your home that you do not have to pay back for as long as you live there. It can be a good source of income for some people, but reverse mortgages are not for everyone. Factors to consider include tax consequences, how the loan may affect your assistance for benefit programs, and the impact on your estate and heirs. The AARP Foundation runs an information project on reverse mortgages that can hook you up with a counselor to disucss the pros and cons of these mortgages. Go to Reverse Mortgages.
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Winchester, Va.:
I was wondering if you are married to your spouse for 10 years and I am divorced and he is remarried if I can collect his social security. Is it true we both have to wait til we are 62--and do I only get half of his now that he is married? Thank you.
Marie Smith: Because you were married for at least 10 years, you will qualify at age 62 for a monthy former wife divorced benefit. A spouse's benefit is one half of the spouse with appropriate reduction factor applied for every month the benefit is received prior to regular retirement age. You must be 62 and have been divorced for 2 years to receive this benefit, but your former husband does not have to be age 62.
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Albany, N.Y.:
Social Security benefits are paid as a percentage of a worker's pre-retirement earnings -- a "replacement rate." But as incomes rise, we're essentially pledging to pay higher and higher taxes to give higher and higher benefits to people with higher and higher incomes. Does a rich worker in the future really need to get $30k a year from social security?
Why not just cap benefits, say to provide a real floor against poverty, and require everyone to save part of their wages in an account to provide income on top of that?
Marie Smith: While it may seem to be a good idea to cap Social Security benefits, or even not pay them at all, to people with high incomes, AARP does not share that view. AARP is opposed to any means testing for Social Security benefits. First, the formula used to calculate benefits gives a higher percentage of their preretirement income to lower income workers and there is a maximum benefit amount that is determined by the maximum amount of earnings subject to the Social Security payroll tax ($87,900 in 2004). I believe that Social Security should be a part of everyone’s retirement, regardless of their total income. Limiting benefits for higher income people would change the fundamental purpose of Social Security and would make it less universal. That would not be a good thing to do.
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Kennewick, Wash.:
I started collecting my Social Security at 65. My husband will probably retire at age 67. Will I then collect 50% of his age 65 Social Security, or 50% of his increased age 67 Social
Security?
Marie Smith: A spouse's benefit is 50% of the wage earners. Your benefit will be calculated on the initial benefit established for your husband at age 65.
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Sarasota, Fla.:
Dear Ms. Smith:
I'm a 71 year old lady drawing $900.00 a month in Social Security. When my husband died I had $700,000 in liquid assets. I retained four different highly recomended financial managers. They managed to reduce my $700,000 down to $400,000. For the past year and half, I have been doing my own buying and selling using Scottrade. Last year I had an increase of $46,000 and I know absoutely nothing about the stock market. My question is, how do you find a Financial Planner? Jean Panero
Marie Smith: Good question, Jean.
On Financial Advisers, there is advice on "How to Find a Planner." You can use some of the questions as an interview form or even mail the questions to prospective planners, asking them to provide the answers in writing on their company's letterhead, so you have a permanent record.
Be sure and ask them to disclose the dollar amount of their compensation from all sources. You will know the benefits of working with them, but, to evaluate your entire experience, you also deserve to know the cost. Worry about vague answers.
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Medford, Ore.:
I started to collect a small Social Security check in 2000 at the age of 62. In 2007 my husband will be 62. What Social Security options will I have in 2007 and will they depend on whether or not my husband collects Social Security at that time?
Marie Smith: Your situation depends on whether you are eligible for benefits based on your own work record and earnings, or if you are only eligible for benefits as a spouse because you have not been in the labor force or have worked in a job that was not covered by Social Security. If you are eligible for your own benefits now, you should check to see if your benefits will be higher as a spouse or on your own once you reach full retirement age (which in your case is probably 65 and 2 months). Spousal benefits are one half of the higher-earning spouse’s benefits, and you will get the larger of either the spousal benefit or your own benefit, but not both. Of course, all Social Security benefits are increased every year by the Cost of Living Adjustment based on the increase in the Consumer Price Index.
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Ellwood City, Pa.:
What interest rate does the federal government or Congress pay the Social Security fund or administration when they borrow money from it? Congress and the federal government should have to pay the same interest rates that banks charge their customers for borrowed money.
Marie Smith: The U.S. Treasury bonds that the Social Security trust fund buys with its annual surpluses and holds to pay future benefits earn the same rate of interest that the average of long-term Treasury bonds pay to private investors such as insurance companies and private pension funds. The interest rate in 2003 was about 6.0 percent. That's a pretty good return compared with other interest rates in recent years. In fact, Treasury bonds are the safest investment available and pay a competitive interest rate.
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Las Vegas, Nev.:
What actions did AARP take to attempt to stop the EEOC from passing the new ruling (Section 731) removing all of us over age 65 from EEOC protection? Now that they have passed it on a 3-1 Commission vote, is there any further action planned by AARP? This ruling will encourage our Employers to discontinue our Medicare Supplemental Insurance Coverage.
My personal experience involved $1.6 million in doctor, hospital, lab, RX, and therapy bills, when I developed cancer which Medicare and Aetna Medicare Supplement (through my employer - I pay $220 per month for the coverage) covered all but about $25,000. I would have been wiped out if Aetna had not been there to pick up what Medicare did not cover. Thank You.
Marie Smith: AARP has fought hard to protect retiree health benefits for all retirees. Last fall, we were successful in removing a provision from the Medicare prescription drug bill (Section 631) that would have allowed the Equal Employment Opportunity Commission (EEOC)to carve out an exemption from the Age Discrimination in Employment Act (ADEA) for retiree health benefits for those who are eligible for Medicare or a state health plan.
We let the EEOC and Congress know that the Commission's rule was age discrimination. If you want to share your views with Congress, you can go here.
This is a difficult issue -- employers facing rising health care costs but retirees depend on these benefits and cannot easily replace them if an employer stops providing them.
AARP knows there is a better solution that the EEOC rule and is working toward that goal. We will take the necessary steps to protect the interests of our members.
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Galion, Ohio:
I am 55 and I am deep in debt. I have been strugling to pay off my bills. When I worked 7 days I was just barely making it. My overtime is now at 6 days and I am falling behind. I have tried to avoid bankruptcy, but since I am so close to retiring and not being able to save as I should be, should I file Chapter 13 to find a way out before I retire? Thank you so much for your advice. Nancy M.
Marie Smith: Try the National Foundation for Credit Counseling's Web site or call 1-800-388-2227 for a 24-hour recorded service.
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Cary, N.C.:
Suppose that someone is over the age of 62 and stops earning income but does not claim social security until he/she is 65. Does that person get the same amount of social security as they would have if they began drawing at 62 or would they get more?
Marie Smith: While you are eligible for early retirement benefits at age 62, they are less than what you would get if you waited until you reach full retirement age. Benefits at age 65 are higher than benefits at age 62 for the same earnings history, but you need to reach what is called the full retirement age to get unreduced benefits. The full retirement age is increasing for everyone who was born after 1939. You should check the Social Security Web site to determine when you are eligible for unreduced benefits.
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San Antonio, Tex.:
Last month I filed for Social Security benefits (age 62). I was told my monthly benefit amount would be based on averaging a 40-year work history. Two years ago when I called Social Security to inquire about the amount of my benefit at age 62, I was informed that it would be based on a formula using my five highest-paying work years. Obviously, the amount I will receive is much lower than I expected. My brother filed for his benefit four years ago (at age 62) and received the maximum amount, based on the 16 highest-paying quarters in his work history. When was the current formula implemented, by whom, and how? was it publicized? Thank you!
Marie Smith: I am distressed that you have been given misleading information, and I hope that it did not come from the Social Security Administration. You must have 40 quarters (or credits) of work covered by Social Security to be eligible for benefits. The formula used to calculate benefits has been the same for many years, and it is based on your highest 35 years of earnings which are adjusted for changes in average wages during that period, so that your earnings history is expressed in terms of today’s wage levels in the economy. The formula that you are describing is one that if frequently used to calculate private pensions, not Social Security benefits.
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Chambersburg, Pa.: If Social Security is privatized will we get smaller benifits?
Marie Smith: It is pure speculation on what will happen if Social Security was privatized. The only thing we do know is that we would lose our guaranteed benefit. As we saw from my reply to the question from New York, N.Y., stock market investments carry a risk and the uncertainty that goes with speculating. Of course some people are better and more knowledgable about investing but others are not. Finally, we can speculate with some certainty that benefits will be smaller.
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Portland, Ore.:
I will be turning 62 in June. I contacted the SSA recently in order to apply for benefits and was told that I did not have to wait but that I could receive benefits immediately since I was a widow. My former husband, to whom I was married for 17 years passed away in 1984 and would now be 71, with a birthday in June at which time he would have been 72. By going under this program my benefits are higher and I am receiving them sooner.
My question is this: could I have received these benefits any sooner? And if so am I still entitled to them? And if so how do I go about applying for them?
Marie Smith: I am sorry to hear that you waited before applying for the Social Security benefits to which you are entitled. Widows (and widowers) can claim survivor benefits at age 60 (or 50 if they are disabled). Unfortunately, you cannot claim benefits retroactively, so you cannot get benefits for the time between when you turned 60 and now.
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Bowie, Md.:
Can you draw your Social Security at 62 years, or do you have to wait until 62 years and 10 months? If you are eligible for full Social Security benefits, how much money you will lose if you draw the benefits before age 65?
Marie Smith: The law has not changed; you can draw Social Security when you turn 62. The age for collecting unreduced benefits (full retirement age) is going up from 65 for those born in 1938 and later. Those born after 1959 will have to wait until age 67 to collect full benefits. You lose slightly more than half a percent of your benefit for each month below the full retirement age that you start collecting benefits.
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Eastchester, N.Y.:
What is the AARP and/or Congress doing relative to employee pensions that are being reduced or capped. There is no focus by anyone including the media on this subject while the senior executives are ripping off all the financial benefit, stock options, bonus and special pensions and 401K plans while the average employee is not being properly compensated but rather being asked to take less than promised all along until the company decides that can not longer afford for the average person not for executives. Lets bring this issue to forefront to Congress and the media.
Marie Smith: The private pension are monitored and regulated under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code.
AARP is fighting for legislation that would protect the pension rights of workers and encourage employers to maintain pension plans.
AARP is also advocating new laws and regulations that would curb executive abuses, limit executive compensation and increase the penalties imposed on business leaders who violate the law.
We need more support from folks like you to help build the grassroots pressure that will persuade Congress to enact the reforms necessary to protect the rights of workers.
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Conifer, Colo.:
In three years at age 62 I will start drawing early social security. At that time I will have three dependent boys ages 15, 13, & 10. What will my total family benefit be?
Marie Smith: In order to obtain your exact benefit amount, you will have to talk with your local Social Security office. However, in addition to your own monthy benefit your three boys will each receive a monthly benefit also. These benefits will continue until age 18 or 19 if thee boy is still in high school.
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Geneva, Ill.:
Why does Bob Brinker advise against purchasing annuities?
Marie Smith: I don't know Mr. Brinker but one always has to be careful about any investment product. Here's a guess. Some "deferred" annuities (you put money in and taxes on earnings are deferred until you take the money out) are actually quite expensive to the consumer and highly remunerative to the salesman. It's one of highest paying products on the salesman's (or woman's) shelf. Also, sometimes the complexities of these annuities are not as well explained as they might be, so the consumer doesn't fully understand all the pros and cons. Annuities have some drawbacks, like all investment alternatives, and you should be sure to ask about tax consequences to your beneficiaries. You should also ask how long it will be before the added costs of the annuity are offset by the tax deferral. Ask for that in writing!
You can convert the deferred contract to a lifetime income, by annuitizing it. Those payments are supported by the full faith and credit of the insurance company. Be sure you are confident that the insurance company is going to be around to make those payments.
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Cheboygan, Mich.:
I retired at age 55. Once I'm eligible for SS, on what will my benefits be based? My total number of lifetime quarters/years worked? A certain number of years of highest pay? Will it increase my benefits if I accumulate more quarters of work (even at extremely low pay compared to my career years) until eligible to collect?
Marie Smith: Your Social Security benefits are determined based on your earnings and your age when you first claim benefits. First, you must have worked 40 quarters in a job covered by Social Security to be eligible for any benefits. Then, your benefits are calculated on the basis of your highest 35 years of earnings. You can claim early retirement benefits at age 62, but your benefits will be lower than if you had waited until for full retirement age. The full retirement age is increasing, and it will eventually reach 67. If you take early retirement benefits, the reduction in your benefits is permanent. However, if you continue to work, your additional earnings could increase your ultimate Social Security benefits.
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Cortland Manor, N.Y.:
The bank I had worked for about 25 years was purchased by Citibank three years ago. Unlike my former employer, EAB, Citibank had switched to a cash balance pension plan about one year prior to the purchase of EAB. Citibank had "grandfathered" it's older and longer tenured employees at the time of the switch to the cash balance plan, but made no such provisions for the older, tenured employees of EAB. As such, my retirement planning has been dramatically altered for the worse. Do you have any suggestions for rectifying this situation.
Thank you.
Marie Smith: Your question illustrates that current law does little to protect the pension rights of workers involved in a merger.
The private pension system is voluntary. Businesses have the option to offer employees a pension plan and they are permitted to modify, freeze or terminate an existing plan. The pension rights of workers involved in mergers are provided little protection under current law.
We need to enact new laws that will protect the pension rights of older and long-term workers caught up in a cash balance conversion. AARP is supporting legislation that would require that workers age 40 or with 10 years of service involved in cash balance pension plan conversions be provided the choice to stay in the old plan or move to the new pension plan.
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Pittsburgh, Pa.:
The Pension Stability Act affecting lump sum payments has been passed. Is there anything in there protected employees who have many years of service? How does this new act affect the payouts? Thank you!
Marie Smith: The pension funding bill signed into law by the President on April 10, 2004 only changes the interest rate benchmark used by pension plan sponsors to calculate pension plan liabilities each year. The new law substitutes a corporate bond rate for the 30 year treasury bond rate for the purpose of calculating a company’s pension funding requirements in 2004 and 2005.
The new law does not change the interest rate used to calculate lump sum distributions. Pension plan sponsors will be required to use the 30 year Treasury rate to calculate lump sums payouts occurring in 2004 and 2005.
The new law is a temporary solution. Congress will have to act again net year to enact an extension of the measure just enacted or a permanent solution to the funding issue.
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Long Beach, Calif.:
I am 54, and I have worked since I was 13. Unfortunately, my pay is only enough to get by from week to week. I have no real savings, and with George w. Bush in office it looks like I will have no social security. The company I work for does not provide any kind of retirement plan or retirement savings plan. I am extremely concerned and I have no idea what to do.
Marie Smith: You have a lot at stake and need to be an informed voter. Find out where the candidates in this election stand on the issues that matter to you and your family. Check www.aarp.org/elections to find the candidates answers to questions on Social Security, Medicare and affordable health care.
Social Security is in sound financial shape for the forseeable future and can pay full benefits on time until 2042 without any change in current law. Reasonable changes can be made that will keep Social Security sound after that.
Social Security is the sound financial base for a secure retirement but it helps to save even a little bit. And, those savings will grow because of interest.
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Grand Rapids, Mich.:
I have been on disability Social Security payments and expect to continue until retirement. Will I stay on disabiltiy benefits until age 65 or until my full retirement age of 65 years and 5 months? Also hoe does this affect Medicare since I am currently covered by my spouse' plan at her employer.
Marie Smith: Your disability benefit will continue until your full retirement age of 65 years and 5 months unless it is determined that you are not longer disabled. Medicare benefits will not be impacted by your coverage under your spouse's health plan.
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Rochester Hills, Mich.:
Will Social Security be solvent by the time I retire around 2016?
Marie Smith: I know that a lot of people are talking about the financial challenges to Social Security that will come when the baby boomers retire. However, there is also a lot of misinformation out there. The report from the Social Security Trustees that was issued in March shows that Social Security will be solvent for nearly forty years -- until 2042. That means that 100% of benefits can be paid until then. So when you retire in 2016, you can be assured that you will get the benefits that you expect and deserve.
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Arlington, Va.:
What steps has AARP taken or plan to take in order to preserve social security long term?
Marie Smith: AARP has been working aggresively and for many years to preserve Social Security for current and future generations. Social Security is in sound financial shape for the forseeable future and can pay full benefits until 2042 without a single change to the law. We want to make sure more Americans understand this and also learn more about the reasonable changes that can be made to keep the program strong. This year we have condcuted over 20 forums in various parts of the country, are planning many more, have asked the candidates for federal office where they stand on Social Security, and are always lobbying to ensure that elected officials understand how to strengthen Social Security.
Check our Web site to see what we are saying about Social Security and where the candidates stand on this issue.
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Columbia, Md.:
What is "spousal benefit?"
Marie Smith: Spousal benefit is monthy payments to the spouse of a wage earner who has retired or is receiving disability benefits. Benefits are also payable to surviving spouses. Generally this benefit is a percentage (50%) of the wage earners basic benefit amount.
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Fredricksburg, Va.:
I've heard in the news that Social Security is going broke and will not be able to pay benefits to the baby boomers. Is that true?
Marie Smith: This is another one of those rumors that go around that is just not true. Social Security is now running large surpluses every year, and is expected to continue to have surpluses until 2028. The Social Security trustees reported in March that 100% of currently promised benefits can be paid until 2042 and that about 70% of benefits can be paid from payroll tax revenues every year for decades after that. But paying only 70% of benefits is not good enough.
The aging of the baby boomers is clearly a challenge to the system, but Social Security will remain the foundation of people’s retirement for many decades to come. AARP is committed to working to strengthen Social Security for the children and grandchildren of the baby boomers.
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Jesup, Ga.:
What is the formula that SSA uses to determine your monthly benefits? Last 5 years or total paid? Thank you.
Marie Smith: Social Security determines your benefit based on an average of your highest 35 years of earnings. If you have not worked that long, your benefit will be less.
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Mundelein, Ill.:
I am not sure if I will retire at 62 or 65, but I am divorced and my question is: Will I be able to collect under my husband's social security, and would the amount be the same as it would be if I were still married to him? Thanks.
Marie Smith: Yes, but only if your benefit is less than your former husband's benefit.
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Oklahoma City, Okla.:
Should COLA be the same dollar amount for everyone?
Marie Smith: The cost of living adjustment (COLA) is tied to your benefit amount and is based on the Consumer Price Index. Everyone gets the same percentage increase.
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Ft. Lauderdale, Fla.:
I am currently retired, don't owe anybody any money and have income from various sources including Social Security at around 44K. It will not be going up very much. How good will that be in 10 years?
Marie Smith: At least your social security is adjusted for inflation.
If inflation averaged 3% per year over the next 10 years you'd need another 20% or so (a total of $52K) in order to buy the same things you can buy today for $44K.
The options are three, according to advisers that I have read about: supplement your income, spend less or, if possible, invest to stay even with inflation, plus a little.
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Amesbury, Mass.:
After reading the question and your response to the writer from Burbank, Calif., I am a bit confused.
Am I eligible for 1/2 of my spouse's benefit during his lifetime, or is it only after my spouse dies that I become eligible?
Thank you.
Marie Smith: You are entitled to half yor spouse's benefit while your spouse is alive unless you have earned a higher benefit on your own record as a worker. If your spouse dies, you will receive his full benefit, unless you earned a higher benefit as a worker.
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San Jose, Calif.:
My company offers a 401(k) plan. So far, I've been putting most of my money in my company's stock. Is that a good idea?
Marie Smith: As recent scandals have shown (e.g., Enron), putting all your eggs in one basket is not a good idea. Try spreading out your investments in more than one type of investment to lower your risk of exposure to only one company.
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Indianapolis, Ind.:
My wife, who has been largely a homemaker for her career, has also worked a “little” full time, and some part time. She began collecting minimal benefits at age 62. She turned 65 in Dec 03, and with Medicare B deductions, it doesn’t leave much. I am 64, fully employed, and will wait (by choice) until I’m 65 & 6 months (full age) before I begin collecting benefits. I’ve read so many SS publications (confusing!), and I believe I’ve read a statement, which says that when I begin receiving my benefits, hers would increase to 50% of mine. Is this correct, or a falsehood?? Please clarify.
Marie Smith: Because your wife took a reduced benefit on her own account at age 62, that reduction will also apply to her spouse benefit on your account. In other words her benefit will be 50% of your benefit less the reduction (25%).
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Lyme, Conn.: If the government privatizes social security, how would they plan to support those who lose money or don't receive enough return from their investments? If the government were to make that money up, it would defeat the whole purpose of privatizing. If they don't make the money up, it would defeat the whole purpose of social security.
Marie Smith: Well, you have hit on an important point about many plans to fundamentally change Social Security by converting it into something that is like a private defined contribution plan such as a 401(k) account. With Social Security your benefits are guaranteed for as long as you live and they are increased every year to adjust for inflation. Under a privatized system, everyone would face the risk that they could lose money and their benefits would not keep up with inflation. So you are right, privatizing Social Security makes little sense and it will not strengthen Social Security for future generations.
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Oklahoma City, Okla.:
I'll be 65 this August, how early should I apply for Social Security Retirement?
Marie Smith: You will be eligible for unreduced benefits when you become 65 and 4 months. The Social Security Administration recommends that you apply 3 months before you want to begin receiving your benefits.
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HowdyDoodieVille, USA:
Do your fingers ever get tired from typing all the answers to the questions that are submitted?
Marie Smith: Yes! It has been exhausting but rewarding.
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Tucson, Ariz.:
Why do I only get $600 per month Social Security after being married for 17 years -- during which time "the best of my earning years" were devoted to supporting my husband who then wanted a divorce and a friend whose husband died gets $1000 although she has never worked a day in her life?
Also, why is Arizona allowed to deduct $63 per week for Social Security from my unemployment check of $119 per week??? As I tried to explain to senators, congress people, the governor and DES, I was working because my $600 per month (actually only $557 after deductions) didn't cover my living expenses. Then was terminated -- probably wrongfully -- but in AZ the employer wins!!!
Marie Smith: Social Security's spousal benefit is based on your spouse's work record, not your situation.
AARP worked hard to eliminate the Arizona unemployment offset and we were successful!!!
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Moderator:
This concludes our discussion. Many thanks to Marie Smith, AARP and all who participated.
Marie Smith:
Mahalo (thank you) for spending this time chatting with me. We are sorry that we could not get to all of your questions( we received almost 400!) during this session, but we'll be back onine in the future. Remember, to stay on top of the latest issues that impact us as we age, visit our Web site.
A hui ho kauko (until me meet again).
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Retirement Security: Are you there yet? 
