Will Social Security Retire Before I Do?
People have traditionally seen Social Security benefits as the foundation of their retirement planning programs. The Social Security contributions deducted from your paycheck have, in effect, served as a government-enforced retirement savings plan.
However, the Social Security system is under ever increasing strain. Better health care and longer life spans have resulted in an increasing number of people drawing Social Security benefits. And as the baby boom generation (those born between 1946 and 1964) approaches retirement, even greater demands will be placed on the system.
In 1945, there were 41.9 active workers to support each person receiving Social Security benefits. In 2000, there were only 3.4 workers supporting each Social Security pensioner. And it is projected that by 2030, there will be only 2.2 active workers to support each Social Security pensioner.
You should consider that as your income gets higher, Social Security replaces a proportionally smaller percentage of retirement benefits. It used to be that you could receive full benefits only after you reached age 65. But in 2003, the age to qualify for full benefits began to increase on a graduated scale. By 2027, the age to qualify for full Social Security benefits will have increased to age 67, where it is
scheduled to remain.
Your long-term retirement planning program should recognize Social Security benefits as playing a more limited role when calculating required retirement income. Indeed, some financial professionals suggest ignoring Social Security altogether when developing a retirement income plan.
Social Security Income
Estimating your future Social Security benefits used to be a difficult task, but not any longer. Every year, the Social Security Administration (SSA) provides a Social Security Statement to working taxpayers aged 25 and older. This statement, which is sent automatically two to three months before a taxpayer’s birthday, provides a report of how much the taxpayer and his or her employer paid in Social Security taxes and a summary of the estimated benefits the taxpayer may be eligible to receive now and in the future.
Monthly Benefit
The Social Security Statement contains an estimate of the amount you would receive if you were to retire at age 62 (the earliest date you can receive benefits), the amount if you waited until full retirement age (which currently ranges from 65 to 67, based on year of birth), and the larger benefit you would receive if you continued working until age 70 before claiming retirement benefits.
Survivor’s and Disability Benefits
The statement also shows what your disability benefit would be if you were to become fully disabled right away, as well as what your survivors might be entitled to if you were to die right away. For example, your children would receive a percentage of your retirement benefit until they reach age 18, and your spouse would receive a specific benefit while caring for a child and a different amount when reaching full retirement age.
Statement of Earnings
Finally, your report will contain a year-by-year summary of your earnings record (the years you worked, your taxed Social Security earnings, and how much you and your employers paid in Social Security taxes and Medicare). You should carefully check these numbers against your own records; occasionally, the Social Security Administration can make a mistake. It’s best to resolve any discrepancies long before you need to claim retirement benefits.
An Important Note
It’s interesting that the Social Security Statement includes a warning about the serious problems facing Social Security in the future. Language mentions the possibility that “the current law may change because, by 2040, the payroll taxes collected will be enough to pay only about 74% of scheduled benefits.” This is a reminder that taxpayers are ultimately responsible for funding their own retirements and that their future Social Security benefits may be lower than indicated by their Social Security Statements.
Social Security started out as a great concept but through the decades has undergone very dramatic changes making it all the more important that each of us plan for our own retirement needs.
