Will Social Security be there for me when it’s my time to retire?
We’ve heard for years that Social Security is going broke. Millions of Americans rely on Social Security to fund all or part of their retirement, so this is a huge concern in our country. So, just how true are the rumors that Social Security is going broke?
According to the 2009 Social Security Trustees Report, Social Security benefits paid out will exceed revenues starting in 2016, and the trust fund could be exhausted by the year 2037. Once the trust fund is exhausted, benefits will still be paid out, but the taxes collected from workers will only be enough to cover 76% of the benefits promised.
While these numbers are definitely alarming, the chances that Social Security is allowed to fail are minimal. Most likely we will see reforms such as raising the full retirement age, raising the income limit that Social Security taxes are paid on, and reduced benefits for future recipients (it’s less likely that people already receiving benefits will see their benefits reduced).
How much can I expect to receive?
It’s important to know how much income you will have from various sources, including Social Security, after you retire. For some people Social Security is their only retirement income; for others it’s a small part of their retirement, as they will have pensions and investment income in addition to Social Security retirement benefits. Regardless, you need to know how much income you can expect to receive so that you can create a realistic budget for your retirement years.
Your retirement benefits will vary based on a number of factors, such as the age you retire, how much you earned during your working years, and how much you contributed to Social Security (some government employees do not contribute to Social Security and therefore may not be eligible for benefits).
Generally, your benefits are calculated by applying a formula to your top 35 years of earnings, indexed for inflation. Once your benefit is calculated, it is reduced by up to 25% for people who retire before their full retirement age, and increased by 8% per year for people who wait until after their full retirement age to start collecting benefits.
The Social Security website has several calculators to help you estimate your retirement benefits.
When should I apply for Social Security benefits?
Probably the most commonly asked question is “when should I apply for Social Security?” By now, you’re aware that your benefits will be reduced if you apply for Social Security before your full retirement age.
The question is, are you better off applying early and receiving benefits for more years, or are you better off waiting until age 66 or later to apply? The answer varies for each person and is based on many factors, such as how long you plan on working, how healthy you are, if you have other sources of income, etc.
How can I maximize my retirement benefits?
Your parents probably never asked this question, but you should: “How can you maximize your Social Security retirement benefits?” Social Security is a much more valuable income stream than most people realize, especially because of the cost of living adjustment (COLA), so every baby boomer should ask this question.
There is nothing wrong with using the Social Security rules to your advantage. There are many strategies you can use to maximize your benefits, which will be discussed throughout this blog (so please visit often!).
Will my Social Security retirement benefits be enough to live on?
Social Security was never meant to support 100% of your retirement. It was designed to supplement other income streams (pensions and annuities) as well as your retirement savings. So you should not expect Social Security to be enough to cover all of your living expenses in retirement. On average, Social Security represents about 40% of a retirees income.
However, Social Security is still a very valuable income stream – whether it makes up 40% or 90% of your retirement income – and you should do careful planning to maximize your benefits and coordinate them with the rest of your retirement plan.