Will Social Security Be Around When I Retire?
Many people feel pessimistic about the future of Social Security benefits. They’ve read reports that the Social Security trust fund will run out of money, and they’re asking, “Will Social Security be around when I retire?”
If you’re in your 50s or younger, you can probably expect Social Security benefits to continue. Too many voters depend on the monthly payment for politicians to let the system fail. However, changes are likely. Read on to find out what’s going on with Social Security and what you can do to protect your retirement.
What’s Happening with Social Security?
Earlier this year, the Social Security Board of Trustees released its annual report to Congress. The board reported that the Old-Age and Survivors Insurance Trust Fund, which helps fund Social Security benefits, will be exhausted by 2034. That’s one year earlier than the last forecast.
What’s going on? Well, a couple of things. First, the very sizable generation of baby boomers has been retiring and thus collecting benefits. Meanwhile, America’s birth rates have decreased, meaning fewer workers pay into the Social Security system.
However, the trust fund’s depletion doesn’t mean benefits will disappear. Social Security taxes continue to be collected and applied toward retirees’ benefit checks. So come 2034, retirees can expect about 76% of the benefits that they were entitled to.
That’s if Congress does nothing.
Lawmakers are likely to do something if they hope to get re-elected, but they’re not doing much right now. Besides a reduction in benefits, potential changes include increasing the taxes that workers pay into the Social Security system.
Changes could also include raising the normal (or full) retirement age, which is the age you’re entitled to your total benefit amount based on your work history. That age used to be 62; now it’s 65 to 67, depending on your birth year. It could be increased again.
Given the potential for reduced monthly benefits, you don’t want to have a retirement plan that depends on Social Security as your primary income source. Actually, it never was intended as a primary income source. The Social Security Administrations pays an average benefit of $1,555 per month, which isn’t enough for most Americans to live on.
What Can You Do Instead of Relying on Social Security?
Instead of planning to rely on Social Security benefits, you can lay the groundwork for your retirement income while you are working. Generally, this means investing.
Holding your money in a checking or savings account won’t earn you a rate of return to adequately grow your money (although your emergency fund should be liquid). Historically, the stock market has provided the long-term returns needed for income generation.
This means investing in tax-advantaged retirement accounts, such as a 401(k) and IRA. If you have access to a health savings account, you can use the HSA to increase your retirement savings. If you have maxed out your contributions for the year, you can continue to invest in a brokerage account.
You can also work with a financial advisor to determine how much you should invest and save based on your current financial situation and retirement lifestyle goals. A financial advisor with the CERTIFIED FINANCIAL PLANNER™ (CFP®) certification will have the training to create a comprehensive retirement plan that includes retirement account distributions, taxes, health care needs, bucket-list dreams, and Social Security benefits.
Whether you work with a financial advisor or go the DIY route, it’s important to have a financial plan that includes your retirement, even if retirement is decades away. Our wealth management firm in Roseville and Folsom, California, believes Social Security will continue to exist, but changes are coming. By planning now, you will be in a better position to respond to those changes.
Schedule a complimentary, 15-minute call with a CFP® professional today to discuss your personal situation.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor serving the greater Sacramento area with an office in Roseville, CA. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.