I’m Retiring Soon: Will Social Security Be There For Me?
Over recent years, there’s been a lot of chatter about Social Security’s financial future. And let’s just say that the discourse has been a little, well, over-the-top. Politicians have been ranting about Social Security going broke, acting like—if we don’t overhaul the system in the next 20 minutes—it’s as good as gone. Jeesh. They’re practically the doomsday preppers of retirement finances.
My advice to you: Don’t let their sensationalism bother you too much. This just isn’t the truth. There’s some truth in there for sure, but—for the most part—it is just causing a lot of unfounded fear.
To begin debunking those unfounded fears, I need to start with a quick explanation of how Social Security works.
How Social Security Works
Founded during the aftermath of the Great Depression, Social Security started to keep elderly people out of poverty in their retirement. It was set up as a “pay-as-you-go” program in which the workforce surrenders a portion of their income in payroll taxes to fund Social Security benefits for the current retirees. Then—when that workforce retires—the next generation of workers bears the burden to fund their benefits. This cycle continues indefinitely, a constant influx of funding coming from the payroll taxes of the working American in order to pay for their elder’s retirement.
Do you see the implications? This means that Social Security can never run out of money completely. In fact, the only way this would happen is if the workforce decided that making money isn’t worth it anymore and paying taxes is optional. In other words, it’s not likely.
Of course, just because it can’t go broke, doesn’t mean it doesn’t need to be fixed in some respects.
The doomsday preppers aren’t completely off their rockers. Social Security isn’t perfect. Sometimes the funding from taxpayers is not enough to fulfill the promised benefits.
This is what is happening now. Although the government built up a surplus in a trust fund to prepare for the retirement of the baby boomer generation, the sheer number of retirees has proved too much. The trust fund is set to run out in 2034 (according to the S.S. Trustee report of 2017), leaving Social Security unable to pay the full benefit.
But please note, I didn’t say that it won’t be there at all. The trust fund might be going broke, but Social Security is not! By payroll taxes alone, 77% of benefits can still be delivered.
Now that’s still not fun. No one wants a reduced check. But this is considering that the government does nothing. They can increase the full retirement age, and they can increase payroll taxes a little bit.
Slowly But Surely
But whatever they do, it very likely won’t be all at once. It is not like you will get slammed out of nowhere with a 23% decrease in Social Security benefits.
Just take a look at how the government handled changing the full retirement age to keep Social Security solvent. Starting in 1983, congress set legislation in motion that was designed to increase the full retirement age from 65 to 67 in tiny increments. It is now 33 years later and—for the people retiring soon (like you)—the full retirement age is still only 66 and 2 months. After all that time, we are only half way there! In my opinion, it will be the same thing with any decrease in benefits or payroll tax hike.
The point is—for the people currently collecting Social Security and for those who are considering taking benefits soon—you’ve got very little to worry about it. Social Security may need a few tweaks, but it is not nearly as ruined as what the doomsday-ers are saying.
Will You Be There For Yourself?
In fact, what you should be more concerned about is where the rest of your retirement income is coming from. Social Security was never meant to cover all of the expenses of your retired life. You need extra funds, extra income to ensure that you can retire comfortably for your entire life expectancy. In other words, you have some planning to do as you approach retirement…some advisors to see, some decisions to make.
It seems that the question is not as much whether or nor Social Security will be there for you, but rather…will you be there for yourself?
Need a Certified Financial Planner to help you transition from employment to retirement? Call Seniormark at 937-492-8800 for a free consultation!