Social Security has been around now for over 80 years and has helped millions and millions of Americans live more comfortably in their senior years. But what about the future of Social Security? It’s something you learn about when you’re young, and like most people, think about it just occasionally until you draw nearer to the time when you will receive it. Although it was never designed to be the sole supporter of your retirement, it has become just that for millions of people. It’s now more than 50% of retirement income for the vast majority of all Social Security recipients.
According to the Social Security Administration (SSA), 52% of all beneficiary couples and 74% of all beneficiary singles received at least 50% of their retirement funds from Social Security payments in 2015! For 22% of all couples and 45% of all singles, Social Security is shockingly 90% of their retirement funds. Those numbers are growing every year. That is pretty scary.
The Trouble with Relying on Social Security
Think about this, you may not even be at the full retirement age when you need to start drawing your benefits whether you like it or not. Many people, over the past 10 years, have been literally forced to begin drawing their benefits because they simply had no choice. If you lost your job and were age 62 or older (62 for most is the first time you are eligible for these benefits), you may have had to begin drawing benefits because it may be your only available way to get any income at all. Older people seeking employment suffer from age discrimination (despite what the laws say), especially if they have other restrictions such as medical problems that will limit their appeal to an employer.
Currently, the average Social Security payment for an individual is less than $1,300 a month, and even less when you deduct your Medicare premium payment if applicable (currently $104.90 for most people). That brings the real income total to less than $1,200 a month. Do you feel like you can live comfortably on that? That’s about $40 a day per person and it’s even less money than my recent post about living on less…and that was illustrated for young and healthy people!
Consider this, average living expenses run a 62-year-old and older from about $1,650 a month to $3,400 a month depending on whether you own a home outright, rent your home or have a mortgage. Does it sound like a lot of people may be in trouble?
These statistics are the reason that so many advisors are worried about your retirement years. The golden years should be a time when you can relax, have fun, travel and think about your family and social life. If you are worried about what you are going to do about buying food, your medical expenses, your real estate taxes and the stress of limiting your social life because of money, then you probably didn’t prepare for your retirement properly when you had the chance. If you’re under the age of 62, you can still do something about it. But the younger you are the better off you will be. Do you want to be destined for tough times?
The Future of Social Security
Then it gets worse.
In 2015, Social Security paid 100% of benefits you are entitled to.
In 2025, Social Security will still pay 100% of benefits you are entitled to.
But in 2035, if nothing is done about Social Security, it will only pay 75% of the benefits you are entitled to.
That is just 19 years away from now, so if you are 43 years old or younger, you may be in serious trouble if changes to funding the system aren’t made. And that trouble can be for the rest of your life! Even if you are in your 50’s now, no solutions to the Social Security system or negative changes to it will mean you will be affected by it for years and years. You may wonder why this is happening and what can be done to fix it.
Reasons for the Dilemma
There are 4 major trends that have led us to this problem:
- People are living longer than ever so the payments last longer and drain the account faster.
- The demographics of our country are changing as the baby boomer generation collects more and more and the population of workers has declined due to the birth rate and extended periods of unemployment which don’t replace the dollars drawn.
- Payout trends haven’t keep up with the real cost of living for our workforce and prevented payroll from keeping monies rolling in as needed.
- People are just uninformed and depend on the system instead of finding alternative sources to fund their retirement.
There have been a number of proposed solutions on both the benefit and revenue sides of the equation. They can be used individually or in combination.
- Permanently reduce Social Security benefits for all (negative)
- Increase the age you can collect your benefits to 68, 69, or 70 (negative)
- Eliminate and/or re-calculate cost of living adjustments (could raise or lower the benefits)
- Increase the taxable amount of income from its current $118,500 maximum (positive)
- Tax all income on a increasingly graduated scale like income taxes are done (without deductions or exemptions) and use that for a new Social Security tax
- Privatize the Social Security funds and invest them (currently the monies are directed to a trust fund which is self-supporting and uses only the Social Security funds collected from your payroll)
- Apply the Social Security Tax to 401k’s and other retirement plans to increase the pool of money available (negative)
And lastly, we could do nothing and let the next generation, 19 years from now worry about it (very negative!).
Most people don’t know that the Federal government does not fund Social Security. It is administered by the SSA, a government agency, but all of the monies used are collected by a dedicated payroll deduction tax and are used only to support Social Security and its benefits. The government itself contributes nothing.
What You Need to Do
This makes planning and getting you individual retirement plans in order so critical. Now is always the best time to make your plans, review your plans, and re-commit to your plans. When your earned income stops, it will be far too late to do anything about it. The real danger is if you won’t save on your own, nothing may be done to improve the situation with Social Security. During the time remaining in the current congress, nothing will happen. That means the discussion for 2016 is over simply due to the combination of large disagreement on how to solve the problem and the upcoming Presidential elections. There are some things that you should and can do before November’s election.
Number 1, if you don’t have a self-directed IRA or you don’t participate in a company offered 401k right now, you must find a way to do so. If you’re 21 or 61, do it right now. The sooner you start and the longer you maintain it the better off you will be. If necessary, seek out professional help to find the best plans offered. But frankly, you can do it yourself. Read about the many options and recommendations in previous blog posts.
Number 2, before you decide on for whom to vote, it’s imperative to find out what the position of your candidates is for house and senate, and even president, on the Social Security dilemma. Do they have a plan or support one? Do you have a suggestion for what should be done? Find out their stand and make sure it’s what you want them to commit to. If you want to make sure your politicians are paying attention to Social Security, head over to AARP’s Take a Stand. If they want your support, let them know that this is important to you and the future. I’m not voting for anyone who doesn’t support keeping Social Security viable for me and all future generations.
Where are you on your own retirement plans? Are you concerned about Social Security and how will you live with or without it in your retirement?