Social Security, Will You Ever Get a Dime?

Social Security

 Young people universally know that they will pay into the Social Security   upon employment, yet they have little optimism that there will be anything  left for them when they hit their Golden Years.

 No Wonder Why You Anticipate Bad News

 You hear politicians from both sides of the isle, and the media talking  routinely about how Social Security will one day ‘go broke.’ Most often they  are trying to gain your favor and attention by intentionally scaring you. Ignore them and read. The news is not as bleak as it sounds. The politicians need to get off their backsides and have the courage to fix it.

The Facts

What people are referring to when they say it is going broke is that the Trust is depleting the reservoir of money it has on hand today. We are putting a serious dent in those funds and in fact without some changes, that fund will go to Zero.

Further, according to present law, the Social Security Administration is not allowed to borrow any funds to prop it up. Current estimates (and they tend to be a moving target) is that this fund will be depleted in 2030.

Every so often politicians say that they want to fix it, and that they will not kick the can down the road. Yet they keep kicking and cannot come up with consensuses as to how to architect said ‘fix.’

The Good News

Assume for a moment that no fix comes in to play. In 2030 the Trust is empty. Remember, workers will still be sending their contributions into Social Security and yes, there will be retirees getting their checks. So money keeps coming in (3.5% of earning from an employee and another 3.5% from the employer for earning up to $118,500 a year, the current cap) so there will be some money to go around.

According to the 2015 Trustees Report, the Social Security administration could continue to pay benefits, but not today’s current amount. They estimate that they would be able to pay only 79% of the promised or then current benefits.

OK, it’s not 100% but most young workers take this as good news, and broke does not mean broke.

What Should You Count On?

For young workers, I would recommend that you do not factor in Social Security as part of your retirement strategy. I would treat is as icing on the cake, but you will get something.

From your early 20’s, put 12-15% of your earnings toward retirement and navigate to a debt free life over the course of your career and you will be more than fine.

Will They Ever Fix It?

Yes, most likely. Currently there are lots of ideas being kicked around, but still no consensus. Note two of the ways that keep coming up as a potential fix that can affect you:

  • Means Testing: With this comes some sort of financial test that estimates your net worth. If you are strong financially, they would limited how much you will get in benefits. It would be determined ‘that you don’t need it (as bad as someone else).’ That might not sound fair but both political parties have mentioned this.
  • Raising the Cap on Income: This will raise the amount subject to taxation for Social Security from today’s $118,500 to a higher amount. If you are going to ask, ‘Does that mean if I pay more, will I get more at retirement?’ I doubt it.

It would be crushing for the 36% of Americans who have nothing but Social Security to have their benefits drop so if you are in bad shape financially, you will probably get what is promised today.

Incidentally, in the wildest dreams of Social Security’s creators was that it NEVER was intended to be the single form of retirement income, only supplemental. In the words of the Social Security Administration themselves:

“Social Security benefits are considered to be only one part of a complete approach to retirement planning. In contemporary parlance, Social Security benefits are described as the "foundation" upon which individuals can build additional retirement security through company or personal pensions and through savings and investment.”

They go on to say:

“For many years, an older metaphor was used to make this point. Social Security benefits were said to be one leg of a three-legged stool consisting of Social Security, private pensions and savings and investment. The metaphor was intended to convey the idea that all three approaches were needed to provide stable income security in retirement.”

Get real. Prepare for your long-term financial independence from early in your career. Pensions are going away and even if you get one, they are not as robust as they used to be.

You will be fine if you don’t squander your 20’s. Get started early and let compound interest work for you. Treat these investments as sacred, and leave Social Security as the icing on your cake in your Golden Year.