A Look Ahead at Social Security
Will Social Security be there for you when you're ready to retire?
Many people are quite concerned about the future of Social Security. According to the Social Security Administration (SSA, 2007), a person age 35 today should expect his or her scheduled benefits to be reduced by 26% at age 69, unless the program undergoes reform.
The problem is simple - American longevity is increasing faster than workers can pay into the system. When Social Security was enacted in the 1930s, life expectancies were much shorter than they are today. Now, with people living longer, there are more Social Security recipients than ever imagined.
In addition, more people are retiring than entering the workforce, lowering the ratio of workers to beneficiaries. In 1950, there were 16 workers for each Social Security recipient. Today that number has decreased to 3.3-to-1. In 40 years, this ratio is expected to drop to 2-to-1 (SSA, 2007). If these projections are accurate, retirees can expect less and less in the future.
What Might Happen?
Lawmakers will most likely consider Social Security reform in the near future. Proposals for shoring up the Social Security Trust funds' solvency include raising payroll taxes, increasing the amount subject to Social Security payroll taxes, raising the retirement age, or reducing benefits in the future. One alternative is the creation of private accounts that would allow workers to divert a portion of their Social Security payroll taxes into individually-owned accounts. Under this scenario, the worker would be responsible for investing and managing these assets.
Where Does That Leave You?
Regardless of the Social Security reform that takes place, you will most likely need to supplement your Social Security benefits with assets from a retirement plan and personal savings in order to fund your retirement. To receive an estimate of projected payments, you can call the SSA at 1-800-772-1213 and ask for Form SSA-7004, "Request for Social Security Statement."
After you return the form, you will receive a record of the earnings credited to your Social Security account over your entire employment history. You will also receive a projection of your retirement benefit, based on what you've contributed so far, and your future expected contributions until retirement. (Note: The SSA automatically mails benefit statements on an annual basis for all workers over age 25.)
The maximum Social Security benefit for someone retiring at full retirement age in 2009 is $2,323 a month or $27,876 a year. In 2009, those who are under full retirement age, working and receiving Social Security benefits will lose $1 in benefits for every $2 earned above the annual limit of $14,160. $1 out of $3 will be deducted in the year you reach full retirement age for earnings above the limit of $37,680. This deduction is taken only in the months before you reach full retirement age, and once that age is reached, there are no earnings restrictions affecting full benefits.
Other changes for 2009 include:
- Maximum earnings on which workers pay Social Security taxes: $106,800
- Average monthly benefits with cost of living adjustments are:
-- Retired workers: $1,153
-- Retired couples: $1,876
-- Disabled workers: $1,064
Once you know what you can expect from Social Security, you can begin saving for what you need, in addition to the benefits you expect to receive. If you are more than ten years away from retirement, it might be wise to lower your expectations regarding the amount of Social Security benefits you will be paid. These days, planning for financial security in retirement is your responsibility. Make doing so a priority today.
The information contained in this article is for general use and while we believe all in formation to be reliable and accurate, it is important to remember individual situations may be entirely different. Therefore, information should be relied upon only when coordinated with professional tax and financial advice. Neither the information presented nor any opinion expressed constitutes a representation by us or a solicitation of the purchase or sale of any insurance or securities products and services . Written and published by Liberty Publishing, Inc. Copyright © 2009 Liberty Publishing, Inc. SOCSEC3-04
The information provided is not written or intended as specific tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. MassMutual, its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.
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