Social security is a mystery to most Americans. It is no big surprise. When politicians created the act they made it as complicated as possible. The good news is that you just need to know the main points. Here are some commonly asked questions that I wanted to share with you.
Will social security be around for me?
Let's start out with what is on most people's minds. Will social security even be around? This is based on pure speculation keep in mind. However, I think that this is a pretty solid forecast. Baby Boomers are a huge voting block. Today they represent those between the ages of 55 and 73. Politicians will take care of that vote potential. Next is generation X is age 39 to 54. Most of that generation should be taken care of. The Millennial Generation who is not even remotely counting on social security will probably have a vastly different social security system available to them. I could see social security adjusted in two ways. First, they will raise payroll taxes. Even the lightest rise will extend social security benefits for decades. Then there is the adjustment of taxes as well as what makes full retirement. There is a lot that they can do. They avoid it because of political fall-out. Will the politicians be brave enough and make the tough decisions?
Will the social security annual increases keep up with inflation?
The better question is will the government continue to give cost of living increases and by how much? Just this morning the government announced that the increase for next year's payment would be 1.6%. That was down from last year. I am not as hopeful about keeping up with inflation. Fortunately, inflation has been low. From a planning perspective, I would figure in 1% per year. The average is 1.4% per year.
When will social security run out of money in its current form?
There are two funding aspects of social security. There are incoming payroll taxes and there is the money accumulated in the social security trust fund. The trust fund is forecast to run out of money between 2034 and 2037. At that point, it is projected that they could pay 79% of current benefits through incoming payroll taxes through 2090. My guess is politicians will close the gap well before then with the new legislation. That gap is fixable.
What age do I take social security?
Some will have you believe that there is an answer to this question based on a formula. That is not the case. It really depends on a case by case basis determined by your current and projected retirement plan. There are a few things to keep in mind. Every year that you wait until age 70 is very beneficial since the payment increases by 8% each year. The main thing you want to consider is the social security death benefit for the surviving spouse. They always continue to pay out the highest payment. So when you originally take it determines that potential death benefit. Then there is the age versus the tax effect. Everyone should have an individualized social security plan of some kind.