WILL SOCIAL SECURITY STILL BE AVAILABLE WHEN YOU RETIRE?
March 10, 2021
There is no doubt that Social Security has been paying out more benefits than it’s receiving in contributions for the past several years. As the baby-boom generation phases into retirement, this problem will only continue to grow. The government’s official position is that it has enough money saved to continue paying out benefits as usual until 2035. After that, the future of Social Security is unknown. Many Americans are worried if they will ever be able to retire without their Social Security benefits. The good news is that the system is too large of a social contract for the government to just let fail, and they have a few options to close the gap in income. The Social Security structure will not change for people who are currently in their 60s, nearing retirement, and getting close to receiving some of their Social Security benefits in the near future. However, a few years down the line, things may change.
The Future of Social Security
For those who are in their mid-fifties right now, the “finish line” of retirement may not be as close as you think. While 67 is currently considered the full retirement age, when people can start receiving their full Social Security benefits, this will likely be pushed back to around 70. This is not a new solution. The government has been extending the full retirement age based on birth year. Depending on when you were born, you are qualified to receive your full benefits anywhere between 66 and 67 years old.
If you’re in your 40s or 50s now, you will likely not receive your full benefits even though you’re paying into the system now. Young Baby Boomers and Gen-Xers should expect to see a cut in benefits of around 30%, and possibly even more for younger generations.
As the deficit in Social Security increases, the administration may use one, or likely both, of these strategies, to keep the program alive.
The Social Security Free Retirement Plan
The most reasonable thing you can do during this time while the fate of Social Security remains unknown is to prepare for the worst and hope for the best. You might want to start pacing yourself a little bit differently, knowing that you may have to retire later than previously thought. By no means should you plan on Social Security benefits being a primary income throughout your retirement. These benefits barely cover living expenses for current retirees. View Social Security benefits as a bonus to the investments you already have in place, and as something to cover certain discretionary expenses. There are many effective ways to save for long-term healthcare and retirement, so you won’t need to worry about Social Security benefits.
Although the 401(k) is a popular retirement savings option for many Americans, having money tied up in one might actually count against you in the future. A 401(k) forces you to pool all your savings energy into one spot, leaving it vulnerable to increased income taxes in the future. We recommend investing in a Roth IRA, with allows you to pay taxes on the money you put into it now, in order to withdraw it tax-free later. It is the best option for those who can afford to spend a little bit more now to fully benefit from their saved retirement income later.
We would love to help you construct your ideal retirement plan. If you have any questions about the current retirement situation in America, don’t hesitate to contact us and schedule a consultation. Give us a call at (614) 389-9711.