Be sure you know what to expect.
Social Security turns 90 this year, and there’s a lot to celebrate about it: “Today, almost seven in 10 Americans (69%) are expecting Social Security as a source of retirement income, and 32% expect that it will be their primary source of income,” according to the Social Security Turns 90: The Cornerstone of Retirement Income report from the Transamerica Center for Retirement Studies (TCRS) and the Transamerica Institute.
But it’s not all butterflies and rainbows with Social Security these days, as the vital program is facing several major challenges. Thus, if I could tell retirees one thing about Social Security, I’d tell them to do this before claiming their benefits: Learn how much you can expect to receive — and plan accordingly.
Image source: Getty Images.
How much income will Social Security give you?
It’s important to know what to expect from Social Security — or at least to have a best guess at it — so that you can plan for your retirement, factoring in that information. For starters, know that the overall average monthly Social Security benefit for retirees was $2,007 as of July — about $24,000 per year.
That’s clearly not a lot, but if your earnings have been above average, your Social Security benefits will be above average, too. Note, though, that the maximum Social Security benefit is still only $5,108 per month, or about $61,000 on an annual basis — and it’s very hard to qualify for.
To get a clearer idea of how much you might receive, set up a my Social Security account with the Social Security Administration (SSA).
Is Social Security running dry?
On to Social Security’s challenges. For starters, while it once ran a surplus, taking in more in taxes from workers than it paid out to beneficiaries, that surplus has been shrinking, as people have generally been living longer and often retiring earlier.
Here’s how the ratio of workers to Social Security beneficiaries has shrunk over time:
|
Year |
Ratio of Covered Workers to Beneficiaries |
|---|---|
|
1945 |
41.9 |
|
1955 |
8.6 |
|
1975 |
3.2 |
|
1985 |
3.3 |
|
1995 |
3.3 |
|
2005 |
3.3 |
|
2015 |
2.8 |
|
2020 |
2.7 |
|
2023 |
2.7 |
|
2036* |
2.3 |
Source: Social Security Administration.
*projected, in the 2024 Social Security Trustees report
So in a nutshell, Social Security’s surplus is turning into a deficit. It’s been estimated that come 2034, there will only be enough money coming to the program (largely via taxes on workers) to pay beneficiaries 81% of what they’re owed.
Thus, while you can hope for the best in your retirement planning, it’s smart to prepare for the worst. Perhaps assume you’ll only receive 80% of what you’re due — or, to be more conservative, even less than that. Read on to learn why.
First, though, do know that there are multiple ways to fix Social Security’s shortfall, such as by hiking the payroll tax or increasing or removing the upper limit on earnings that are taxed for Social Security.
Is President Trump’s administration helping or hurting Social Security?
Meanwhile, here’s why we might end up with even less than 81% of our Social Security retirement benefits — or why the cut to payments may happen sooner than 2034: The Trump administration.
The “Big, Beautiful Bill” recently passed offers a new retirement income deduction for those 65 and older — and it means that fewer dollars of Social Security income will be taxed. That may seem great, but it also likely means less money flowing into Social Security’s trust fund coffers. Thus, those funds will likely be depleted sooner.
Again, there are ways to bolster Social Security, but that will take the will of Congress, which is not a sure thing these days.
What to do
So what should you do about all this? Well, just don’t count on Social Security providing a lot of your retirement income. It should provide some, but you’ll do best saving, investing, and setting up some other income streams for your retirement — such as dividend income, annuity income, income from rental properties, pension income, and so on.
It’s also important to know that there are ways to increase your future Social Security benefits. A great one is delaying claiming your benefits. You can claim them as early as age 62, but they will be smaller than if you wait. Some studies suggest that the best age at which to claim, for most people, is age 70.
If you’re starting to worry now, thinking you’re behind in your saving and investing, consider this powerful strategy: delay your retirement, at least a little, if you can. That can permit you to sock away more.
