How Social Security Will Survive Into The Future
Social Security has long been a cornerstone of retirement planning, offering a fixed monthly payout that adjusts for inflation. Though never meant to be the primary source of retirement income, many of today’s younger Americans are learning that when they retire, the size of that monthly payment may be smaller than they anticipated.
In reality, according to an October 2021 Civic Science study, more than 53% of 25-to-44-year-olds fear that Social Security will be there for them, and those approaching or already in retirement are concerned about the program’s sustainability.
Social Security has proven to be a big success. It helps 44 million Americans who are aged, disabled or the survivors of dead employees. More than three-fifths of the elderly rely on Social Security for most of their income.
Half of the elderly would be impoverished if the program’s benefits were unavailable. Social Security also covers active employees’ families with life insurance worth more than $12 trillion more than all private life insurance today.
What is the Significance of Social Security?
Social Security is critical to many seniors and is one of the few social programs with bipartisan support. According to a 2020 AARP poll, 90% of Democrats, Republicans, and independents approve of the program.
While Social Security is meant to augment people’s retirement savings, many seniors rely on the program’s benefits as their sole source of retirement income. According to the Center on Budget and Policy Priorities, half of all seniors rely on Social Security for half (or more) of their retirement income.
Retirement income is described as a “three-legged stool” by the National Institute on Retirement Security (NIRS), consisting of Social Security, a pension plan, and individual retirement savings through accounts such as a 401(k) or IRA. 
How is Social Security paid for?
To understand why Social Security is facing a long-term funding crisis, it is necessary first to know how Social Security operates. To begin with, Social Security is paid for by payroll tax deductions.
These payroll taxes are deducted from an employee’s paycheck and are paid by both the employee and the business. Payroll taxes will apply to up to $147,000 of an individual’s yearly income in 2022.
The Social Security payroll tax rate is 6.2%. This implies that both employees and employers pay 6.2%. Self-employed individuals will pay the total 12.4% payroll tax rate.
When workers pay their Social Security payroll tax, the money is not sent to a specific Social Security fund. Current employees contribute to a system that pays for the benefits of all current retirees.
According to the Social Security Administration, in 2022, 85 cents of every dollar you pay in Social Security payroll tax goes toward the Social Security trust fund, which distributes monthly benefits to current retirees and their families. The remaining 15 cents goes to a trust fund that supports disabled persons and their families.
When can you start receiving benefits?
Suppose you receive reduced-rate Social Security benefits but later change your mind. In that case, you can withdraw your application within the first 12 months of receiving gifts and repay the government what you’ve already received. Otherwise, When deciding when to claim Social Security, keep the following points in mind.
Your financial requirements
Suppose you’re considering retiring early and have enough resources (an investment portfolio, a conventional pension, and other sources of income). In that case, you can be flexible about when you collect Social Security. You may have fewer alternatives if you rely on Social Security income to meet ends. If feasible, consider deferring retirement or working part-time until you reach your full retirement age or even older to maximize your benefits.
Your expected lifespan
Early Social Security payments are reduced, but you will get monthly checks for longer. On the other side, deferring Social Security results in fewer payments over your lifetime, but each statement is greater.
If you believe you will outlive the average life expectancy, waiting for a larger monthly payout may be a good deal. If, on the other hand, you’re in bad health or have reason to suspect you won’t outlive the average life expectancy, you can opt to seize the moment.
A brief word about life expectancy
According to the Social Security Administration, the average life expectancy for a 65-year-old male is roughly 84 years and 87 years for females. Married people live even longer, with a higher-than-normal chance of at least one partner living to the age of 90.
But keep in mind that the average is just that: an average. Early withdrawals may make sense if you anticipate a reduced life expectancy. If you live longer than the usual person, starting Social Security later can be especially advantageous.
What is your marital status?
If you’re married, consider your partner’s age, health, and benefits, especially if they’re the higher-earning spouse. At full retirement age, for example, you can accept either 100% of your retirement benefits or 50% of your spouse’s, whichever is greater.
If you are divorced and have been married for at least ten years, you may be eligible for payments based on your ex-Social spouse’s Security record (up to 50% of their entire retirement income). It is essential to highlight that if your ex-spouse utilizes your record, it will not affect your or your current spouse’s benefits.
Your Current Job Situation
Earning a job (or even self-employment income) will temporarily diminish your payout if you collect Social Security early. If you are still working and have not reached your full retirement age, $1 will be removed from your benefits for every $2 you earn above the yearly maximum ($19,560 in 2022).
When you reach full retirement age, the benefits decrease to $1 for every $3 you earn beyond a higher ceiling ($51,960 in 2022). However, after you reach full retirement age, your benefits are no longer lowered, regardless of how much you earn.
4 Hard Truths About Social Security That Future Retirees Should Be Aware Of
Many Americans eagerly await the day they will be eligible to receive Social Security payments. After all, earning a government-guaranteed income for life may be an excellent method to support a pleasant retirement. However, the fact is that Social Security payments may not be as large as you believe. And if you rely too much on them as a source of retirement income, you may find yourself in serious trouble.
In 2022, the average benefit is only $1,657.
Future retirees frequently believe that they will be able to survive on Social Security alone if necessary or that their retirement payments will, at the very least, be a significant source of income that will cover many of their critical needs. However, according to the Social Security Administration, the average payout in 2022 will be just $1,657. That indicates that if you depended solely on Social Security and had no other resources, you could survive on $19,884 per year if your monthly payout was near the average.
Benefits are only intended to replace 40% of pre-retirement income.
Knowing the average payout illuminates what you can realistically anticipate Social Security to do for you. However, that figure alone does not provide a comprehensive picture of how much advantage you will receive. After all, you might receive higher or lower checks than the national average. That is why it is equally important to realize that Social Security benefits are intended to replace around 40% of seniors’ pre-retirement income.
Understanding that retirement benefits would only provide you with around 40% of your earnings before leaving work emphasizes the importance of additional savings. Most financial gurus recommend replacing at least 80% of profits to prevent significant lifestyle adjustments.
It may be a surprise to learn that your benefits amount to a small percentage of your wages. Rather than being your complete source of retirement cash, Social Security is intended to supplement a pension and savings.
Cost-of-living adjustments are falling behind inflation.
One primary reason why so many prospective retirees expect to rely on Social Security is that benefits are expected to be inflation-protected. As the cost of goods and services grows, so do miracles, according to the program’s built-in Cost of Living Adjustments. These COLAs are based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers year over year (CPI-W). When the CPI-W reveals that expenses have risen, benefits rise by a certain proportion .
Many people are obliged to seek benefits sooner than they would want.
Many people want to stay working and avoid filing for Social Security. It’s a good plan because delaying filing for Social Security benefits increases your benefits. While you can begin receiving benefits at 62, waiting as long as possible until 70 will allow you to increase the number of your monthly checks.
Unfortunately, according to Employee Benefit Research Institute statistics, many people are forced to quit their jobs considerably sooner than expected. 26% of current employees anticipate retiring at 70 or later. Only 6% of individuals who have already retired were able to continue working for that long.
Will the Social Security Trust Funds be depleted by 2034?
According to the 2021 Social Security Trustees report, Social Security’s trust funds will be depleted by 2034, and payouts will be slashed by 22%. However, Congress might make changes to enhance the program. “That has a lot of folks frightened or anxious,” says Beau Henderson, founder of Gainesville, Georgia-based RichLife Advisors. “People tell me I can’t survive on 78% of my Social Security income. But not so quickly, I say. What I anticipate is that they will continue to make small modifications to maintain it sustainably.”
A few fundamental changes to the Social Security program might ensure its long-term viability. “If there is a shortfall in 2034 and Congress does nothing for the following 12 or 13 years,” says Eric Kingson, a professor at Syracuse University’s School of Social Work and co-author of the book “Social Security Works for Everyone: Protecting and Expanding the Insurance Americans Love and Count On.” “The Congress will not remain silent. Nobody wants to be in Congress when they tell their voters, “Oh well, we had to slash your benefits by 22%.” 
What are your options for supplementing your Social Security income?
When investing for retirement, it’s critical to begin saving as soon as possible, whether through an employer-sponsored 401(k), pension plan, or an individual retirement account.
Though experts recommend saving 10% to 15% of your yearly income, you may start modestly and gradually improve your savings rate, especially if you have a credit card, healthcare, or school loan debt.
If your employer matches your 401(k), making the most of your matching contributions should be your top priority because it’s essentially free money. Many firms will give 2% to 4% of employees’ yearly pay.
Many intertemporal decisions must be made while planning for retirement—the most significant of which is how much money to save and how to invest it. Individuals build expectations about various variables, such as future incomes and rates of return, while making these decisions. Future Social Security benefits are one of these factors, as they are the primary source of retirement income for 53% of married couples and 73% of unmarried people aged 65 and older.
While Social Security payments are unlikely to be fully withdrawn in 12 years, there is a good chance that they will be considerably decreased if revenues are not boosted in the next few years. To ensure the security of your retirement plan, examine your retirement income stream on the assumption that your Social Security payments would be cut and identify what changes need to be made if this occurs.
Knowing the facts is the best approach to prepare for future changes to Social Security. Humanity has a habit of responding before pausing to consider what is happening. So, perhaps, this quick analysis has helped to dispel the myth of Social Security “running out.” Working with a financial planner is also great for planning for retirement income. Saving throughout your life will reduce your anxiety about Social Security’s adjustments in your future and finances.
- [Will Social Security run out of money?] From Select Link: https://www.cnbc.com/select/will-social-security-run-out-heres-what-you-need-to
- [4 Harsh Realities of Social Security That Future…(n.d.) from social security intelligence Link: https://www.socialsecurityintelligence.com/4-harsh-realities-of-social-security-that-future-retirees-need-to-know/
- [The Future of Social Security] (Sept. 24, 2021) from US news Link: https://money.usnews.com/money/retirement/social-security/articles/the-future-of-social-security