Social Security has not collapsed, but it is unstable.
A new report on Social Security predicts that combined retirement and disability trust fund reserves will collapse in 2035, leaving more Americans, especially those nearing retirement, with no idea how much benefits they will receive. This is causing anxiety for people who are worried about whether they can expect money.
Social Security and Medicare's Board of Governors in 2024 is reporting a projected bankruptcy a year later than expected last year. The outlook isn't exactly bright, but it's backed by a strong economy and rising wages, which are boosting payroll tax payments to fund the program. At the moment, low unemployment means more workers are participating in the program, even as a growing number of baby boomers are starting to take advantage of benefits. said the trustees.
However, the possibility of running out of funds does not mean the cash register will be empty. There will still be funds available to pay benefits at that stage, but only 83% of the amount promised to current and future beneficiaries. In other words, without the modification, a beneficiary could see his benefits reduced by 17%.
“Congress is becoming cornered in resolving Social Security's outstanding bankruptcy issue,” Mary Johnson, a Social Security and Medicare policy analyst, told Yahoo Finance. She said, “If you don't act on the program in time, Automatic benefit reduction. ”
To what extent will that disconnect be felt? The program paid out about $1.4 trillion in benefits to about 67 million Americans last year. For about half of older adults, Social Security provides at least half of their income, and for about one in four older adults, Social Security provides at least 90% of their income.
There are several solutions to fill the gap, including increasing the payroll tax that funds the program, currently split between employees and employers at 12.4%. Other proposals include raising the retirement age for young workers and eliminating the cap on Social Security taxes on personal income. The 2024 Social Security tax cap is $168,600.
read more: How to find out your Social Security COLA increase in 2024
Is there social security?
According to a study by the Transamerica Retirement Research Center, one of people's biggest retirement fears is future cuts or elimination of Social Security. Seven in 10 people are concerned that they will no longer receive Social Security benefits when they are ready to retire. And approximately she expects one in three people to rely primarily on Social Security or to depend on it.
I spoke to several experts about the advice they give their clients regarding planning for Social Security as part of their retirement income. Here's what they said:
1. Assume that profits will decrease
Many planners said they were already considering potential Social Security shortfalls for their clients.
“We are reminding our clients that this is just the latest forecast of reductions in current and future benefits for retirees,” said Rob Williams, managing director of financial planning at Charles Schwab. said. “The dates will change, the amounts will change slightly, but the story remains the same. The prediction is not that benefits will suddenly stop or Social Security will be eliminated.”
Many workers also raised their hands.
“In conversations with clients, they've already learned that they won't receive anything from Social Security,” Alvin Carlos, a certified financial planner and financial advisor at District Capital Management in Washington, D.C., said in an interview. I'm assuming that.”
“I try to give them the expectation that they're likely to still get three-quarters of the profit. But I also encourage them to save more in their 401(k), IRA, or brokerage account.” And for most of our clients, we generally recommend that they wait until they're 70 or 100 years old to start collecting Social Security. This is insurance for
“My younger clients, who are probably under 50, talk about it jokingly, but I actually do some serious planning because I tell them they're not going to take Social Security,” she says. added financial planner Alana Morley. Interview with a private wealth advisor at Ameriprise Financial in Naples, Florida. For me, it's better to be well prepared than underprepared that way. ”
read more: What is the retirement age for Social Security, 401(k), and IRA withdrawals?
2. Save, invest and don't claim early
To alleviate stress about whether or not you have Social Security, Williams added, take ownership by saving and investing and start as young as possible.
“We each have a responsibility to plan, save, and ideally invest to build a nest egg. Control what you can control — that's what saving and investing is all about.”
All the planners I spoke to agreed that fear of losing Social Security can drive people to apply for benefits as soon as they become eligible at age 62.
The problem: If you claim benefits early, your monthly check will be much smaller. That's not recommended.
“With news like Social Security shortfalls and all of us facing emotions, it's natural to make decisions emotionally,” Williams said. “What I hear from my clients is, 'I want to get my money while I can before it's gone,' and 'I have to do this because I'm really going to screw it up.'”
A better approach, he tells his clients, is to think long-term. “Stop, pause, step back a little, absorb those emotions, and then come up with a more rational plan that isn't driven by emotions,” he said.
He suggests people aim for full retirement age. If you were born after 1960, you will be 67 years old. If you can wait until you're 70, that's great. “It takes discipline, but the longer you wait, the more expensive benefits you will have to pay for the rest of your life,” he said.
3. Delay Social Security — only if you can.
For Americans who are healthy and have other sources of income, waiting until age 70 is great advice.
However, some people may have no choice but to make this choice.
This week, I received an email from a reader that drove home this point. He had read my column about how most Americans expect to retire from full-time work at age 62 and why I thought that was a terrible idea.
He writes: “Many of us don't want to retire early, but we have no other choice. My story is about people working in trades or other highly physical jobs who are no longer able to do their current job due to physical decline. So we get Social Security as soon as we can. And again, a lot of people, like me, want to go back to work, but they just quit. They are said to be unqualified for anything other than jobs and are too old for non-manual jobs.”
He urged me to “consider the number of people who cannot afford to work in an office all their lives and are forced to retire early.”
He's right.
Congress has less than 10 years to resolve the shortages facing millions of Americans like this man. Let's hope they finally get serious.
Kelly Hannon is a senior columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 of her books, including “The World's Best.''Taking Control Even Over 50: How to Succeed in the New World of Work.” and “You're never too old to be rich.” Follow her on X @Kellyhannon.
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