What’s Going to Happen to Social Security for Us Young(ish) People?

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Did you know that social security is the primary source of retirement income for a majority of Americans?  Without social security benefits somewhere between 40 to 52% of Americans would fall below the poverty line.  Seriously, people just aren’t saving enough for retirement, even high income earners.  As a young(ish) person myself, I often wonder what’s going to happen to social security in the future.  I hear people say social security isn’t sustainable the way its going, it’s going to disappear in the future!  The work force is shrinking!  All these statements are probably somewhat true, but what does this exactly mean for us young people who are still like 25-40 years from retirement and are going to live til like 100+?  Is social security just going to disappear?  Should we not even rely on it? Since most retirement calculations and projections include your estimated social security benefits in determining how much you should be saving, it’s a good idea to keep up with what’s going on with social security here and there and what it’s going to look like in the future so as to more accurately plan for retirement.  By the by, you can estimate your social security benefits here at ssa.gov.

I read this interesting report by JP Morgan Asset Management on the future of social security.  I think they are becoming my go to for retirement information.  Not only do they have awesome visual aids but their explanations are detailed but concise enough for me.  By the way, I have no investments at JP Morgan nor do I have any financial relationship with them in case this sounds like some kind of advertisement for them. =P  Here were some important takeaways from the JP Morgan report and from the Social Security website:

  • There’s a social security trust fund that’s projected to cover social security needs til 2034.  It’s 2016 right now, so that’s less than 20 years from now.  Eeek!
  • Even if this trust fund is depleted, payroll taxes will continue to cover 79% of SS benefits through 2089.  According to SSA.gov, its actually 75%, but still good to know that social security isn’t likely to completely become bankrupt even through my lifetime.
  • Therefore, if you are currently 50 years old and older, you will most likely be able to rely on the social security system as it is right now.  Good news for my parents.
  • If you’re younger than that and make a lot of money, well then you’re out of luck.  Just kidding.  Sort of.  All young(ish) workers can expect a cutback in the amount of benefits we receive, possibly even a further reduction if you are a high income earner.  Other changes to expect might be an increase in the age you can receive full benefits.  Currently a person can start to receive some social security benefits as early as age 62, with full benefits at age 66 (or 67 if you were born after 1960), and a larger benefit amount if you delay til age 70.
  • Increase in costs has to do with lower birth rates and not because we are living longer.  This came from the Social Security website and I have to say I was surprised since I really thought it was both.  Life expectancy has been steadily increasing in conjunction with people having less babies and I imagine that this trend will only continue.

I guess the bottom line is that some form of social security is likely to remain in the future even for us young(ish) workers.  It’s not going to pay out nearly as much as it pays out now, but some portion of it should be considered when you calculate your retirement needs.  How much?  Well assuming payroll taxes will really cover approximately 75% through 2089 and you expect you’ll be gone by then, then maybe 75% of your estimated SS benefits?   I’d say if you feel very concerned about the stability of social security, are younger than 30 and are a high-income earner you could be more conservative in your estimates and/or even take out social security completely when calculating how much you need to accrue by retirement.  That way if you do get it then it’ll just be a nice bonus.  Me personally, I think for now at least I’ll calculate that I’ll receive roughly 50% of my social security benefits but probably not starting at 67 years of age (the current age to receive full benefits if born after 1960).  What do you think?  Yes, no, maybe so on social security in the future?  Anyone want to take a stab on what percentage of it we should use in our retirement calculations?  Thanks!

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