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Why I’m Not Counting on Social Security, and Neither Should You

The Social Security program is a pact between workers and their employers that they will contribute to a common fund to ensure that those who are no longer part of the workforce will have a basic income on which to live. — President Jimmy Carter 

Social Security has been a lifesaver for countless millions, and it does provide a basic income — but it’s not easy to live on Social Security benefits. Here are two reasons why I’m not counting on Social Security to be my main support in retirement — and why you shouldn’t, either.

Image source: Getty Images.

Social Security was never meant to replace your income

For starters, Social Security was never meant to fully replace your pre-retirement income. These days it replaces about 40% of it for many people and less for higher earners. The average monthly Social Security retirement benefit check was recently about $1,666 — roughly $20,000 over the course of a year.

That’s probably much less than you might have expected and certainly a lot less than you’ll require if you want to live comfortably. The maximum benefit, recently $4,194 per month or about $50,000 per year, might sound more like what you’d like or would expect, but you’ll only receive that if you’ve earned the maximum amount that counts for Social Security (currently $147,000) in each one of the 35 years of earnings that are incorporated in your benefit calculations. You’ll also have had to delay starting to collect your benefits until age 70 — something that many can’t do.

To get a better idea of what your specific benefits are likely to be, visit the Social Security Administration (SSA) website and set up a my Social Security account there. Then you’ll see estimates of your future benefits as well as the SSA’s record of your earnings, year by year. (If you spot any errors, look into having them corrected so that you don’t end up shortchanged on benefits.)

Social Security benefits may end up shrinking

The first reason I’m not counting on Social Security to provide much of my retirement income is that it’s going to provide much less than I expect to need.

The other reason is that the Social Security program is in danger of not being able to pay out all of the benefits that we workers are entitled to receive in retirement. (The news isn’t quite as bad as you may fear, so keep reading!)

Understand that the Social Security system is designed so that working people pay into it via taxes on their earnings, and those earnings are used to pay retired workers their benefits. It all worked well decades ago, when there were far more workers than retirees, but over the past few decades, people have been living longer and retiring earlier.

The Social Security Administration has detailed how the ratio of covered workers to beneficiaries has changed 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

Source: Social Security Administration. 

In other words, we’re approaching the point at which not enough will be coming in to cover benefits needing to be sent out. According to the recently released 2022 Social Security Trustees Report, the current Social Security surplus will be depleted by 2034. That doesn’t mean that the program will “run out of money,” as some breathless news reports suggest. Instead, benefits may end up reduced. The latest estimate is that retirees can expect to receive around 77% of what they were entitled to.

That’s the worst-case scenario. It’s not guaranteed to happen, though, because there are a bunch of ways that Congress can strengthen Social Security, sending more money to its coffers. The tax that we pay from our paychecks can be increased, for example. A relatively small increase can make a big difference. Also, not everyone knows this, but we’re only taxed for Social Security up to a certain income level, which is adjusted regularly. It’s $147,000 for 2022, so every dollar you earn up to that will be taxed, but any dollars earned beyond that do not get taxed. This means that lower-income earners get taxed on all their income, while wealthier folks only get taxed on part of their income. Taxing all income and eliminating that cap can go a long way to restoring Social Security’s ability to meet its obligations.

What to do?

I’m not counting on Congress to fix Social Security, though I hope it will. Instead, I’m saving and investing for my future because Social Security alone will not provide enough. Crunch your own numbers to see how much you need for retirement, and then figure out how you’ll get there. It may not be a fun exercise, but it can lead you to a much more secure future.

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