Social Security for Retirement Planning

Key Takeaways:

  • Social Security retirement benefits are a pay-as-you-go system, and there is no guarantee of benefits.
  • Social Security benefits can change over time. Your full retirement age, spousal benefits and more may be different for you when you retire compared to those of people retiring today.
  • Fears over Social Security bankruptcy are likely overblown—but it may be prudent to plan to rely more on your own savings in order to help maximize your chances at reaching your retirement goals.

How much can you anticipate receiving from Social Security? Social Security benefits have provided income for many retirees for decades. But many future retirees fear they won’t receive adequate—if any—benefits. They may see stories in the media about the program running out of funds in the near future. But when you look beyond the scary headlines and focus on the reality, the future may be less bleak. 

Basics and Common Myths

Social Security is a program managed by the government. Individuals must meet certain eligibility requirements to receive the benefits. An individual’s spouse, former spouse or children may also receive benefits if they meet certain eligibility requirements. Eligibility generally depends on an individual’s number of credits that are earned by working and paying Social Security taxes. But the terms of eligibility aren’t set in stone. Congress has made minor changes to Social Security to help ensure its long-term solvency over time. An example of such a change: In 1983, Congress raised the retirement age and made benefits taxable.[i] Given that life expectancy is rising, it is possible the full retirement age could get boosted higher.

There are some common misconceptions about how Social Security benefits are funded and the long-term viability of the system. Whether you are retired, nearing retirement age or still years away, it is important to understand the truth of these benefits.

Here are some of the more common myths and misunderstandings about Social Security.

Myth #1: Social Security is a lockbox. Some assume the government places Social Security contributions in something similar to a bank lockbox under each worker’s name, where it accumulates until they start receiving benefits. However, this isn’t how it works. Social Security is a “pay-as-you-go” system. Current workers’ tax payments fund current retirees’ benefits.

Any contributions greater than the amount needed to pay current benefits are placed in a trust administered by the Social Security Administration. That money can be used to buy special bonds created by the federal government. This arrangement can provide some protection from inflation, which can be beneficial for future benefit recipients.

Myth #2: Social Security benefits are guaranteed. Some people may believe they are guaranteed to receive a certain amount in Social Security benefits. The truth is that you have no guarantee of how much money you will receive in benefits. The US government can reduce or even cut retirement benefits. They could also raise the full retirement age. If there is an impending shortage of Social Security funds, it could be addressed by a tax change, benefit reduction or some combination of the two.

You can’t perfectly predict what may happen to Social Security benefits in the future. But as you prepare for retirement, it is wise to bear in mind when it comes to Social Security, nothing is set in stone.

Myth #3: Social Security will go bankrupt. Some people fear that the Social Security benefits they are counting on won’t be there when they are ready to retire. They believe shifting demographics and Baby Boomers’ retirement means the system will be short on cash to support future payments. However, this overlooks the younger generations that are just entering the workforce or potentially reaching higher earnings in their careers. External factors matter, too. Immigration can bring a fresh supply of workers to pay into the system. And remember, if lawmakers tweak current rules and benefits, they can help avoid a funding shortfall.

Using Social Security for Retirement Planning

Although Social Security isn’t facing an immediate funding crisis and doesn’t seem likely to change drastically any time soon, it still may be prudent to not depend solely on it for your retirement strategy. It is impossible to precisely forecast the distant future. Too many changes could occur between now and the next 10, 20, 30 years or more. But if you are younger and concerned Social Security won’t be around for you, your strategy is simple: Don’t depend on it. Instead, focus on building savings and investing in assets that offer sufficient long-term growth to provide for you, your spouse and your family’s needs in retirement.

For many investors, a sound financial planning strategy doesn’t involve depending on a single source of income. While Social Security can provide a supplementary stream of cash, it is a good idea to build a thorough financial plan focused toward reaching longer-term investment goals. That way, you and your spouse can enjoy your golden years, even if the retirement benefits you expect to receive from Social Security may be less than you expected.

Charting Your Course

How will you use Social Security retirement benefits? You likely don’t want to assume the current retirement benefit amount will remain the same or that past trends will predict the future. However, it can be useful to estimate the payments you might receive and consider when you will begin taking them. The amount you could receive in retirement benefits depends on your lifetime earnings.[ii]

You should also carefully consider when you and your spouse can start taking benefits. The Social Security Administration’s website has information on full retirement ages based on year of birth.[iii] For example, individual and spousal benefits will vary in amount based on your age when you begin taking them. You may see significant differences if you start receiving retirement benefits at age 62 versus your full retirement age.[iv] And if you wait longer, up until age 70, you could see an increase in your monthly benefits.[v] You can also find additional information on spousal benefits qualifications. With that information, you can plan on how to maximize your Social Security benefits after you retire.

Contact Fisher Investments Today

There are many factors involved in planning a successful financial strategy for your retirement. We have helped investors with a wide range of needs and situations. Contact us today and we will be happy to share more insights on Social Security retirement benefits and retirement planning.

[i] Source: Social Security Administration, as of 09/30/2019. https://www.ssa.gov/history/1983amend.html

[ii] Source: Social Security Administration, as of 09/30/2019. https://www.ssa.gov/pubs/EN-05-10070.pdf

[iii] Source: Social Security Administration, as of 09/30/2019. https://www.ssa.gov/planners/retire/ageincrease.html

[iv] Source: Social Security Administration, as of 09/30/2019. https://www.ssa.gov/planners/retire/agereduction.html

[v] Source: Social Security Administration, as of 09/30/2019. https://www.ssa.gov/planners/retire/delayret.html

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