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By Jason Stipp | 03-23-2013 02:30 PM

Social Security: Your Questions Answered

Retirement experts Mary Beth Franklin and Mark Miller tackle viewers' most pressing questions on this very important, yet also contentious, retirement pillar--Social Security.

The following is a replay from the 2013 Morningstar Individual Investor Conference.

Jason Stipp: Welcome back to Morningstar's Individual Investor Conference. You're sitting in on the panel Social Security: Your Questions Answered. This has been a very popular topic among our Morningstar readers. In this session we're going to be talking about a couple of strategies, strategies for divorcee, strategies about when to claim your Social Security. This is going to be an increasingly critical issue for retirees as we move forward.

I'm pleased to be joined on this panel by two Social Security gurus, folks who have extreme knowledge of the Social Security system. They're going to be sharing some of those insights with you today. 

To my immediate left is Mark Miller. Mark is a Morningstar columnist. You've probably seen his articles on He is the author of The Hard Times Guide to Retirement Security, Practical Strategies for Money, Work and Living. He also writes a syndicated column for Reuters and blogs about retirement planning and saving strategies on

And joining Mark, who also joined us last year, is Mary Beth Franklin, a contributing editor for InvestmentNews. She is a frequent speaker on retirement issues, and I think she must be some kind of mystical Social Security guru. She knows the answers to all of these situations. So it's great to have you, Mary Beth.

Mary Beth Franklin: Thank you.

Stipp: Prior to joining InvestmentNews, she was a senior editor with Kiplinger's Personal Finance magazine, specializing in retirement planning, tax planning, and Social Security.

So, before we get going. I just want to remind our viewers that we will be taking questions during this session, so to the right of your viewer you can enter a question, send it off, and we'll try to get to as many of those as possible. I should say we got tons of questions before this event. This is an event where there's no shortage of questions. We will be trying to hit some of the questions that come in during the panel. So let's get going without any further delay.

Let's start, first of all, before we get into the tactics, and talk a bit about Social Security, the health of Social Security, some of the policy changes around Social Security. This is an area that seems of perennial concern now. Mark, I'd like to start with you. Can you give us a clear concept about the fiscal health of the Social Security program? We hear these big words like insolvency and big problems that are coming up. What should we know about Social Security's health, the trust fund, how do all these factors fit together?

Mark Miller: So, Social Security is basically designed, Jason, as a pay-as-you-go system, meaning that benefits are funded at base out of the payroll taxes that are coming in at the time as the money is going out. So, that's the payroll tax; we have 6.2% tax that's paid by employees and a same amount is paid by employers. That's the payroll tax.

There is also something called the Social Security Trust Fund, which we're in a very unusual period of time in Social Security's history right now in that we have an enormous trust fund surplus that's been built up, basically as the result of the last time Social Security was reformed, which was 1983. At that time, policymakers looking ahead at the age demographics of the country said we're going to have this enormous age wave of baby boomers. We better do something to build up a cushion to pay out those benefits.

So at that time, the big change that was made was a change of the retirement age gradually from 65 to 67. We're right in the middle of that, but the upshot is that we began accumulating this very, very large trust fund surplus. So where we are at right now is those surplus funds are now starting to get drawn down as baby boomers do in fact start to retire and file for Social Security.

And so, the financial issue the Social Security faces is this: The trustees of Social Security say that that trust fund will be gone in 2033. We'll actually get a new projection on that shortly when the new trustee report comes out; that will be the spring. But 2033 is the year in which we would, absent any other change, be back to a PAYGO system. And with those funds exhausted, we would then be at a point, again absent any other change, where Social Security benefits would have to be cut by about 25%. In other words, the program would only have resources to pay out 75% of promised benefits to everybody using the program.

Franklin: And let me just jump in a second. So, when people say Social Security is going bankrupt, it's not going bankrupt. Even under a worst-case scenario, sometime around 2033 when the trust funds are gone, the payroll taxes from workers in 2033 would still be enough to pay $0.75 out of every $1 of benefits, but no one is going to be satisfied with that. This is the most popular and most successful government program in history, and despite the fact our leaders in Congress have had a difficult time getting much done in the last few years, I really do believe they will rise to the occasion to fix this because the public will demand it.

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