For those of you who may not know it, Social Security is the best and least expensive annuity one can buy. Now that I have your attention, let me further intrigue you with the fact that Dave Ramsey, financial guru du jour, thinks you should generally begin receiving Social Security benefits as soon as possible; to which my reply is a resounding WRONG. Obviously without changes, there is a shortfall of funds available to meet future cash payment obligations. But hey, the U.S. Government stands behind this quasi-Ponzi scheme and whose credit rating is better to rely upon than Uncle Sam's?
If banks and insurance companies were deemed too large to fail, surely we could anticipate similar treatment of the Social Security system. And a relatively simple system it isit takes in cash and pays out cash.
The Houdini math occurs when workers who are presently paying into the scheme believe they are contributing into a trust or fund that is set aside for their future benefit. Wrong again. Contributions made by today's workers pay the benefits of past workers already in retirement. In a way, employees are lending money to the system in hopes of receiving it all back plus tidy amounts of interest, paid in the form of lifetime income payments that far exceed their contributions.
Assuming history repeats itself (as it often does), future financial disaster is adverted and Social Security pays out as planned. So, you need to take full advantage of its potential.
Wait and you shall receive more
Fact: We Americans are living much longer. Delaying when you will begin to receive your Social Security can increase you annual income by over 9.25 percent for each year you defer. Also assuming a very conservative cost of living allowance or increase (COLA) of 1.5 percent on top of the scheduled annual increases, where on earth in this low interest rate environment can one earn 9.28 percent, backed by the highest credit rated entity in the universe?
