For years, rumors have been whispered as a dire warning: Social Security is running out of money, and there won’t be any left when we retire. This is a common belief among Gen-X and Millennial workers, but some Baby Boomers have bought into the hype, too! Here’s what you need to know about the “crisis” within Social Security.
No, the money won’t all be “gone”. Social Security’s budget is covered by two sources: Taxpayer revenue, and a trust fund. Yes, the trust fund will be depleted by about 2034, but taxpayer revenue still amounts to hundreds of billions of dollars per year. Without any alterations to the budget whatsoever, Social Security could still pay 77 percent of scheduled benefits. So, theoretically checks could be lowered, but the money will still be there.
That’s all assuming that Congress doesn’t intervene and fix the problem, which they are likely to do, to avoid offending those who rely upon Social Security.
It will be difficult for many people to retire without Social Security. The average Social Security benefit is close to $1,500 per month currently. You would have to save about $400,000 in order to generate that much income in retirement (and, of course, much more if you don’t think $1,500 will cover your monthly expenses).
So no, you probably shouldn’t try to “go it alone”, but luckily you won’t have to. In the worst case scenario, Social Security will still be able to pay 70 to 80 percent of your original benefit. So you should aim to plan for another stream of income, but you won’t have to fund your entire retirement yourself.
You can’t just ignore it. Social Security calculates your benefit based upon your 35 highest-earning years. And since they can make mistakes, you shouldn’t just ignore your earnings record. Check up on it periodically, to ensure that Social Security has the right information recorded. You can’t just ignore it because you think Social Security won’t be around much longer. It absolutely will!
No, you might not want to “get what you can, while you can”. The belief that Social Security is evaporating leads some people to believe they should claim their benefits early. But doing so will cause your monthly checks to be permanently lower; that’s something you wouldn’t want in the event Social Security is forced to reduce benefits by 20 percent or so.
The takeaway lesson here is that Social Security is not going away any time soon,and your benefits will be there (in some form) when you need them. So, don’t ignore these planning issues. And if you have any further questions about Social Security or retirement planning in general, please give us a call.