If you're retired or close to retiring, then you've probably got nothing to worry about--your Social Security benefits will likely be paid to you in the amount you've planned on (at least that's what most of the politicians say). But what about the rest of us?
The media onslaught
Watching the news, listening to the radio, or reading the newspaper, you've probably come across story after story on the health of Social Security. And, depending on the actuarial assumptions used and the political slant, Social Security has been described as everything from a program in need of only minor adjustments to one in crisis requiring immediate, drastic reform. Obviously, the underlying assumptions used can skew one's perception of the solvency of Social Security, and even experts disagree on the best remedy. So let's take a look at what we do know.
Just the facts, ma'am
According to the Social Security Administration (SSA), over 50 million Americans currently collect some sort of Social Security retirement, disability or death benefit. Social Security is a pay-as-you-go system, with today's current workers paying the benefits for today's retirees. How much do today's workers pay? Well, the first $106,800 of an individual's annual wages is subject to a 12.4% Social Security payroll tax, with half being paid by the employee and half by the employer (self-employed individuals pay all of it). This money is put into a big holding tank--the Social Security trust fund--and is used to pay out current benefits. The amount of your retirement benefit is based on your average earnings over your working career. Higher lifetime earnings result in higher benefits, so if you have some years of no earnings or low earnings, your benefit amount may be lower than if you had worked steadily. Your age at the time you start receiving benefits also affects your benefit amount. Currently, the full retirement age is in the process of rising to 67 in two-month increments.
You can begin receiving Social Security benefits before your full retirement age, as early as age 62.However, if you retire early, your Social Security benefit will be less than if you had waited until your full retirement age to begin receiving benefits. For example, if your full retirement age is 67, you'll receive about 30 percent less if you retire at age 62 than if you wait until age 67 to retire.
Demographic trends
Even those on opposite sides of the political spectrum can agree that demographic factors are exacerbating
Social Security's problems, namely, life expectancy is increasing and the birth rate is decreasing. This means that over time, fewer workers will have to support more retirees. According to the Social Security Administration (SSA), in 1950, there were 16 workers per beneficiary, today there are 3 workers per beneficiary, and within 40 years there will be just 2 workers per beneficiary. The SSA predicts that in 2016, Social Security will begin paying out more money than it takes in.
If I were a betting man, I would bet, I ain’t seeing Social Security
Michael Salmon is a Senior Financial Advisor with Ameriprise Financial in Midtown Manhattan. Michael Specializes in Financial Planning, Investment Portfolio Management, Retirement Planning Strategies, Estate Planning Strategies,Saving for Education You can reach Michael at (646) 964-9470 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
