Social Security and retirement

The role Social Security plays in retirement planning.

Are you at an age to be thinking about your Social Security benefits?  Nearly half of people start at the earliest possible moment. They want back what they’ve worked hard for, and they don’t want to wait.

 

But that may miss the point. According to Social Security, if you’re due a check for, say about two thousand dollars a month when you’re 62, if you wait – if you can wait—‘til you’re 70, that monthly check will close to double to about $3500. And that’s a big difference at an age when every dollar counts.

 

Before you can retire, you’ve got to know how you’re going to support yourself. That means doing a budget, lining up all your income sources and knowing how much you can expect to receive from each. Social Security, because it is a relatively known quantity, represents the pillar of that plan.

 

Pressing questions needing answers:

 

  1. Will Social Security be there for me?
  2. How much can I expect to receive?
  3. When should I apply for Social Security?
  4. How can I maximize my benefits?
  5. Will Social Security be enough to live on in retirement?
  6. You’ve been told for years that the system is “going broke.” But now that it’s almost your turn to collect, is that really true?

Social Security is a big deal. Decisions involving how and when to file for benefits are complex and tricky. Bad decisions have lifelong consequences. Because Social Security benefits are a key element in virtually all retirement plans, they should be considered carefully before committing to a decision which could end up not being what you had in mind years from now.

 

The Future of Social Security

 

Some have called it a Ponzi scheme. Basically, this year’s workers are paying for last year’s retirees. This has worked well for 80 years. But there is a flaw in the structure, and that flaw has been deepened by the accelerating disappearance of traditional retirement plans such as pensions.

 

Orignal SSA poster promoting Social Security for retireesWhen, in the 1970s, it became clear that America’s birthrate was slowing down it portended trouble for the Social Security structure. As long as there were more workers than retirees, the system seemed sound. In the 1930s when the system was first put in place there were about 40 people working for each person in retirement. And the design of the system was fairly meek – it was to keep the elderly men and women who had migrated to the cities during the great industrialization period, and who had not accumulated any retirement resources, from becoming indigent (keep in mind that the concept of retirement itself is very recent). “Poorhouses” were grim and dank, and run on the leanest of resources. They were simply places to go die.

 

Times are better now. There are many, many people who are better off from benefits received from Social Security. But now – and looking into the future – the system is stressed. Instead of 40 workers for each retiree (or benefits recipient) there will be only two or three contributing to the system. The system is sound now and through 2020. And manageable through 2031. However, as we approach that time period substantial changes will have to occur – and they are most likely to impact those who have contributed the most to the system.

 

Low wage earners will receive back more in benefits than they contributed. Affluent wage earners will not, and their shortfall is probably going to be substantial. Currently, and for the past few years, the system has realized a cash flow deficit of about $75 billion a year. Obviously that is not sustainable, and is one of the reasons America’s Middle Class needs to have disciplined plans for retirement – and should include a combination of retirement vehicles such as IRAs, Roth IRAs, and fully funded 401(k) programs.