What is the Future of Social Security?

The future of Social Security has received a lot of publicity lately, especially when the candidates for President of the United States debated each other about how they would propose solving the looming problem of potential Social Security insolvency.

According to the Social Security Administration (SSA), the Social Security Trust Fund will be unable to pay 100 percent of promised benefits to recipients starting in 2033 if the program’s income and payouts continue along their current path, based on projections. Currently, the SSA is estimating that benefits could be reduced by 22 percent at this time.

“With all of the claims and counter-claims that are being made, many people aren’t sure exactly what they should believe about Social Security and its future,” says David Lerner Associates Branch Manager Jonathan Hurwitz. Given this, Hurwitz identifies the following four Social Security facts:

1. Social Security benefits may not be enough to support you completely during retirement.From its inception, Hurwitz notes, Social Security was designed primarily to provide supplemental retirement income—not to be the sole source of income for retirees. “So whether you are eligible to receive 100 percent of your Social Security benefits when you retire or less than this amount, it may be wise to save additional retirement money in a qualified retirement plan like a 401(k) or an Individual Retirement Account (IRA).”

For example, the average retiree’s monthly Social Security payment today is $1,234, or slightly more than minimum wage for a month of work. Even if you have lower expenses during retirement (for example, if you have paid off your home mortgage), this may not be enough to maintain your pre-retirement income—especially if you live in an expensive area of the country.

2. There are options for when you may begin receiving Social Security benefits.Some people associate 65 with the age at which you can begin receiving Social Security benefits, but there are other age options. In short, you can start receiving benefits 1) at age 62, 2) at your full retirement age, or 3) at age 70. Your “full retirement age” depends on when you were born and will fall somewhere between ages 62 and 70.

The longer you wait to begin receiving Social Security benefits, the larger your monthly benefit check will be. “So, if you are still working in your early to mid 60s and don’t really need Social Security benefits yet, it might make sense to wait until later and receive larger monthly payments,” says Hurwitz. “But if you want to retire sooner, you could elect to start receiving benefits as early as age 62.”

3. Making more money now doesn’t necessarily translate into receiving proportionally more money later.While it’s true that those who earn more money (and subsequently pay more into Social Security) during their working lives will receive more money back in Social Security benefits when they retire, the amounts aren’t proportional. Social Security’s benefits formula is progressive, which means that low-income workers generally receive a higher percentage of the money they paid into Social Security in benefits than high-income workers do.

4. Social Security and Medicare do not share the same eligibility dates.Some people mistakenly believe that the age requirement when they can apply to begin receiving Social Security and Medicare benefits is the same. However, you cannot receive Medicare until age 65, while you can begin receiving Social Security benefits starting at age 62 if you desire (as noted above). Note, however, that if you collect Social Security Disability, you will automatically receive Medicare coverage after two years.

Material is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. (DLA).

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