Retirement Planning Articles |
Social Security and You: What Does the Future Hold?
On average, Social Security benefits currently represent approximately 39% of the typical retiree's income, according to the Social Security Administration.* For future generations of retirees, Social Security may represent a much smaller percentage of retirement income.
A System At Risk
When Social Security was established in 1935, the average life span among Americans was 63. Today the average life span is more than 77 years, according to the National Center for Health Statistics.
In 1950, 16.5 workers paid retirement benefits for each retiree. By the year 2030, when baby boomers begin leaving the workforce in large numbers, the ratio may be approaching two workers to every one retiree.*
By then, the burden of taxes on each worker may well be unmanageable.
As baby boomers begin to retire, the strain on Social Security is expected to increase, since retirees will, for the first time, begin outnumbering current workers. This aging of the population has led some experts to predict that by 2041 the Social Security system may may run out of funds.*
Does all of this mean you will have no Social Security to draw upon when you retire?
*Source: Social Security Administration, 2008.
Your Efforts Now Will Directly Impact Your Retirement Lifestyle
While the exact timetable of what will happen to Social Security in the future is uncertain, present trends clearly indicate that your own efforts to build financial security for your retirement years are more crucial than ever and that the time to begin planning for retirement — no matter what your age — is now.
Even under the best scenario, the Social Security system was created as the foundation for retirement, but it was never intended to provide the sum total of financial security during your retirement years. So, the more you can do for yourself to save and invest for retirement, the better off you may be.
How Much Will Social Security Pay You?
To determine the benefits you are currently entitled to receive, call the Social Security toll-free number at (800) 772-1213 and request form SSA 7004, the Request for Personal Earnings and Benefit Estimate. Complete the form and send it back. You will receive a personalized estimate of your benefits, plus a statement showing your annual earnings.
Like reconciling your bank statement, your Social Security summary of annual earnings should be verified against your tax return statements, W2 forms, or your own records. If there are any discrepancies, report them at once.
Social Security Pays For More Than "Retirement Benefits"
Social Security contributions are paid by you and your employer. Your contributions were deducted from your paychecks since the day you started working and are matched by an equal amount paid by your employer. These contributions pay for the following:
- Retirement benefits — Collectible at different ages depending on the year in which you were born and based on the number of years you've been working and the amount you've earned. In some cases, your children and your spouse may also be eligible for benefits on your account.
- Survivor's benefits — A kind of life insurance coverage available to your spouse and dependents.
- Disability insurance — Provides a monthly income in the event you are unable to work due to a disability. Eligibility depends on your age and the number of "credits" you have earned.
- Medicare — Entitles you to medical benefits and coverage, including hospital insurance, after age 65.
Others In Your Family May Also Be Eligible
Currently, under select circumstances, when you receive Social Security benefits, additional payments may also be made to:
- a spouse age 62 or older;
- a spouse under age 62 who is caring for a child under 16, or a disabled child who is receiving benefits from your earnings; and
- unmarried children under age 18 (or under age 19 if they are enrolled full time in high school).
Your financial or tax professional can provide more specific information.
Your Retirement Age Also Affects Your Benefits
You can currently choose to receive retirement benefits at age 62 or delay benefits until age 70. The decision is yours. Here’s a look at your options:
- Currently you can retire and receive full benefits when you reach "normal" retirement — that is, age 65 if you were born before 1938. Normal retirement age will gradually rise in monthly increments over the next 25 years until it reaches age 67.
- You can retire between 62 and your normal retirement age and receive a reduced benefit.
- You can also continue working, delay the receipt of benefits, and get a bonus for each year of work past normal retirement age, up to age 70. "Delayed retirement credits" rose to 8% in 2008 in order to encourage later retirement.
Benefits May Change After Retirement
Your monthly Social Security check may change to reflect the following:
- Cost-of-living increases.
- Eligibility for disability benefits after retirement, but before you reach normal retirement age.
Your Checklist For Applying For Social Security And Medicare Benefits
Social Security benefits will not come to your mailbox automatically. You must apply for Social Security benefits and for Medicare benefits. If additional insurance is being considered, remember to apply within six months of Medicare eligibility to be accepted without regard to preexisting conditions. When you apply, you'll want to:
- Decide whether you'll collect your own Social Security benefits, based on your earnings and work history, or your spouse's. Presumably, you'll want to choose the one that pays the most. If you retire before a spouse, you can collect your own benefits, then switch and choose the spousal benefits if they are greater.
- Remember to apply for retirement benefits a few months before you want them to start. Some time is required to process all the paperwork, including Social Security number, proof of age, and evidence of recent earnings (W-2 forms from the last two years, or, if you're self-employed, copies of your two most recent tax returns).
- Apply for Medicare before you retire.
- Apply for any additional health insurance within six months of Medicare eligibility.
- Reconcile your Social Security earnings report with your own records at three-year intervals. Report any discrepancies.
- Remember that Social Security checks can go to a former spouse to whom you were married 10 or more years: at 62 for a divorced spouse, at 60 for a surviving divorced spouse, and at 50 for a disabled surviving divorced spouse. Children, in certain cases, may be eligible for benefits under a grandparent's earnings.
- Bear in mind that "earnings limitations" (which change each year) may limit the amount you may earn while still receiving Social Security benefits. Those limitations end when you reach normal retirement age.
- Keep Social Security records up-to-date if you change your name, in order to have your earnings credited properly.
Regardless of your Social Security options, think of Social Security as only a small percentage of your total retirement plan and set aside a portion of your income on a regular basis. Saving and investing for your own retirement "nest egg" is an absolute must.
Points To Remember
- Social Security benefits may only account for a small percentage of your retirement income needs.
- For information on your benefits, call Social Security at (800) 772-1213.
- You can choose to receive full benefits upon reaching normal retirement age or delay receiving benefits until age 70 and receive additional credit by doing so.
- Remember to apply for retirement benefits a few months before you want them to start. Apply for Medicare before you retire to maintain continuous coverage.
