For a government program designed to help people feel more secure, few topics strike more panic in the hearts of retirement-minded people than the future of Social Security.
Case in point: Earlier this year, we sent a survey to all of our clients asking them to name their #1 retirement-related concern and one of the top five answers was whether or not they could count on Social Security being around when they retire.
That’s why today we’re tackling some of the most common nerve-wracking questions we hear from people regarding the future of Social Security.
Will Social Security still exist in 30 years?
This is a good starting place so we can help set your mind at ease, somewhat.
You may have heard someone say that Social Security is running out, or that it won’t be around by the time you actually retire. While there might be some truth to this statement, it’s not the whole story.
As of their latest count, the Social Security Administration projects that benefits will still be paid in full up to the year 2037 (although recent reports say it may be a few years sooner).
Does that mean Social Security will end in 2037? If the answer ended there, then you could understand why people think Social Security might be going away.
But it doesn’t end there.
After 2037, if nothing changes, beneficiaries would begin collecting 76% of their scheduled benefits rather than the full amount, meaning Social Security wouldn’t necessarily “end,” but it would decrease.
Of course, the government is working on finding a solution to avoid cutting Social Security at all. They’ve floated a number of ideas, such as increasing the payroll tax rate by 2% or increasing the full retirement age from 67 to 69.
As you might have noticed, the government is ever-changing in ideas and what could be done, so it’s difficult to say what will happen between now and 2037, but we’ll definitely be keeping an eye on it.
Will Social Security payments stop if the government defaults?
Ten years ago, this question may have seemed less pressing. Nowadays, the government can hardly function for an entire quarter without shutdown threats.
When that’s the reality, no one would blame you for wondering what would happen to your Social Security payments if the government were to shut down.
In short, no, Social Security payments are not affected by a government shutdown. Social Security is considered a “mandatory program,” which means regular payouts are required to continue – any interruptions would be a violation of federal law. It’s the same for programs like Medicare or Veterans Affairs.
So don’t worry: Social Security payments will continue regardless of whether the government is operating or not. That being said, a government shutdown would affect the Social Security office, making it much harder to do anything beyond receive benefits, such as verify new benefits claims.
Should I adjust my retirement plan to prepare for the possibility that Social Security might not exist when I retire?
So what should you do to protect your retirement income plan if Social Security disappears?
Honestly, not much.
Social Security as a program isn’t going anywhere. Sure, things will change in the next 10 to 20 years, but there’s no way to know what that will be. The most practical advice is the same we’ve always given regarding Social Security: Make sure your retirement income plan includes other forms of income to supplement your Social Security benefit.
Can Social Security’s cost of living adjustment (COLA) keep up with the higher inflation rates we’ve seen recently?
The answer to this question still remains to be seen.
The next COLA increase will come in January 2024, with a 3.2% increase. According to the US Inflation Calculator, the inflation rate for the 12 months ending September 2023 was 3.7%.
With a higher-than-usual inflation rate lately, previous COLA adjustments have gotten close, but have also fallen short of fully covering the rise in cost of living.
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That’s not to say they’re not trying to cover the gap. After falling short of the record-breaking inflation rates of 2021 (7% vs. a COLA of 1.3%) and 2022 (6.5% vs. a COLA of 5.5%), the COLA for 2023 jumped by 8.5%.
How much will my Social Security benefits be taxed?
Your Social Security benefits will only be taxed if you have significant earnings from other sources. According to the Social Security Administration’s website:
If you:
- file a federal tax return as an “individual” and your combined income* is
- between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
- more than $34,000, up to 85 percent of your benefits may be taxable.
- file a joint return, and you and your spouse have a combined income* that is
- between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
- more than $44,000, up to 85 percent of your benefits may be taxable.
- are married and file a separate tax return, you probably will pay taxes on your benefits.
If you’re wondering what “combined income” means, it’s:
Your adjusted gross income + Nontaxable interest + ½ of your Social Security benefits
When should I claim Social Security to get the most benefits?
Your monthly benefit amount is tied to when you apply to begin receiving Social Security – so it definitely matters when you claim.
The earliest an individual can claim benefits is at age 62, and the latest is currently age 70. Claiming earlier will permanently reduce your monthly benefit amount, whereas claiming closer to 70 years of age will permanently increase your benefits. The exact amount you’ll receive also depends on when you were born, your current age, and your work record.
When you should claim depends on several factors:
- Your health
- Your life expectancy (how long did your parents/grandparents live?)
- Other retirement income sources
In short, the longer you expect to live, the later you should claim. As we said, the earlier you claim, the less monthly benefit you’ll get.
Of course, you want to get as much as you can, but if your family has a history of passing away in their early 70s, it might make sense for you to claim earlier as you won’t have as many years to reap the benefits of the higher payments.
If you expect to live into your 90s, you may want to wait as long as possible.
There are ways to calculate when your breakeven point is for claiming benefits. Some find that in your mid-80’s it starts to make sense to delay.
Now that you understand Social Security a little better, check out our ebook below to help you be prepared for retirement.
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