What Can You Expect?
When it comes to Social Security retirement benefits, most people do not think of it as their only source of retirement income. However, it has been and will continue to be an important retirement foundation for retirees across the country. The question people are asking themselves today is: What will this source of income look like in the future?
Why the Question?
The question is relevant to those nearing retirement and to young professionals.
It’s true that, based on the numbers and without any governmental change to the current system, the Trust Fund paying out Social Security benefits may be depleted by 2034. This is simply a matter of math, based on careful calculations of many actuaries who every year pore over a set of statistics to make assumptions for the next 75 years. These facts are reported each year in a document called the "Trustees Report."
Starting in 2020, according to the 2014 Trustees Report, revenues and interest income alone will not be enough to cover total expenditures. The Trust Fund reserves will then start to be tapped, so that Social Security benefits can continue to be paid at the now projected current rates for beneficiaries. Said another way, the Federal Government will start to use the principal of the Social Security Trust Fund to supplement beneficiaries’ retirement checks. By the way, this is why the Trust Fund was created in the first place. Like any other saving account, it provides a shock absorber to the system. By 2034, reserves in the Trust Fund are projected to be gone. That’s the bad news.
Here’s the good news: the system will be far from bankrupt, because Social Security tax contributions will keep coming in. These tax contributions are projected to cover up to 75 percent of the benefits due.
If these projections don’t improve due to economic and demographic trends, policymakers will likely have to make some changes to the program before 2034 to ensure that all scheduled benefits can be paid. Adjusting the program is something that Congress has done several times during the 80-year history of the Social Security program.
There are a number of proposed solutions designed to actually address the projected deficit in Social Security. Ideas include lifting the cap on earnings subject to Social Security contributions, increasing the Social Security Tax contribution rate, and/or raising the retirement age.
Most likely, the system will be "fixed" with a combination of benefit adjustments and revenue increases. Keep in mind that in the past, when Congress made changes to Social Security, they were implemented gradually over a long period of time to prevent major shocks to the system. These changes will most likely impact younger workers rather than workers nearing retirement.
What about Me?
In the end, how much you get has less to do with government formulas, since those are out of your control, and more to do with you — namely your earnings history, retirement age and when you decide to file for benefits, among other factors.
How Much Will I Get?
It depends. Everyone is different. To find the answer you need to consider four major variables: your earnings history, marital status, age and longevity.
You can find a great deal of helpful information by visiting the Social Security Administration website at www.ssa.gov. This is where you will be able to set up your personal “My Social Security” page that will show your earnings history and provide estimates of your retirement benefit based on different filing ages, including at your full retirement age.
Does My Current Age Matter?
You will need to decide whether to begin collecting at the earliest possible age (62) or at the latest age (70). When you start collecting is up to you. However, the government makes you wait until full retirement age in order to get your “full” retirement payout. Taking benefits early can reduce monthly payments by up to 30 percent, depending on when you were born and when you begin receiving benefits. If your full retirement age is 66, taking benefits at age 70 can increase the monthly payments by up to 32 percent, due to delayed retirement credits. As you can see in the graphic, the full retirement age for everyone born between 1945 and 1954 is 66. If you were born after 1954, the full retirement age gradually increases to 67.
The Answer to the Million-Dollar Question
While congressional leaders ponder and debate the next steps and necessary changes in the evolution of the Social Security program, you may want to take a few steps of your own:
- Meet with a Financial Professional who can help you with full retirement age projections, which ultimately will help you determine how and when to take retirement benefits.
- Discuss the suitability of tax-advantaged vehicles, such as Roth IRAs and annuities as supplements to Social Security income.
- Consider permanent life insurance. When a spouse dies, for example, life insurance death benefits can help offset the loss of Social Security income.
While we don’t know for certain how Social Security will evolve, one thing is clear: Much of your future income for retirement will depend on decisions you make now. By planning ahead for retirement and assessing what income sources you’ll have, you can be better prepared for the next chapter in your life.
For more information on Social Security retirement benefits, visit the Social Security Administration at www.ssa.gov.