When it comes to retirement planning, Social Security is among the most complex topics to discuss due to the unique circumstances each of us faces. Regardless of your age, planning for your retirement and when to take Social Security benefits is always a smart decision in order to avoid many possible pitfalls. Here is a look at some of the more interesting facts and insights pertaining to Social Security benefits.
Social Security did not exist until President Franklin D. Roosevelt signed it into law over 82 years ago on August 14, 1935. It was originally intended to help older, retired Americans with a continuing stream of income. Nowadays, the massive scope of this program is quite impressive with benefits extended to the spouse and minor children of retired workers, workers who become disabled, families in which a spouse or parent dies and more recently medical health coverage (Medicare) for Social Security benefits.
More United States citizens benefit from Social Security than any other federal program.
There are plenty of rumblings about how Social Security benefits might run out in the next decades. Surveys also show two-thirds of Americans are in favor of the executive branch taking steps to ensure Social Security is on sound financial footing. The data also indicates the majority of people in each age group agree Social Security benefits should not be decreased.
Based on the latest Social Security Administration’s report, the trust is on track to be depleted in 2034, at which point the system will be able to pay 77% of benefits from ongoing tax revenue. That projection is expected to shrink to 73% by 2089.The latest projection doesn’t mean retirees will get nothing starting in 2034. It only means that at that point the program will only have enough revenue coming in to pay 77% of promised benefits.
So if you were expecting to get $2,000 a month, your payout would shrink to $1,540.
Though the fear of running out of Social Security funds is certainly legitimate, it is my belief that our government will never let it happen, as doing so would cause a global economic crisis. What we will most likely see is a radical overhaul and a higher minimum age requirement to begin drawing it, along with a delayed full retirement age and increased taxes. The last time the system changed in 1983, payroll taxes were increased to bulk up Social Security coffers. This tax hike was meant to support the influx of those in the Baby Boomer age group who would be retiring in the decades ahead.
The average American is more likely to owe taxes on Social Security with each passing day. Depending on income during retirement, up to 85 percent of one’s Social Security benefits may be taxed. Income limits have not changed for a while even though wages have been increasing. As a result, there is a good chance the average claimant will owe some taxes. It is quite the contrast to the early 1980s when under 10 percent of all beneficiaries paid federal income tax on Social Security benefits. The number of taxed claimants has quadrupled since the 80s.
The fact remains that 75% of boomers make costly mistakes by electing to receive benefits too early and unknowingly leave hundreds of thousands of dollars on the table. Generally speaking with a married couple, the breadwinner should delay. The person who waits to claim benefits at age 70 will receive 76% more (real) dollars per month for the rest of his life than if he claimed benefits at age 62. Still, when to claim benefits is an individual choice and should be decided upon only after meeting with a professional and running the numbers.
If you are looking for financial planning assistance, reach out to us today to schedule an initial consultation.
TZG Financial provides everything from retirement planning services to asset protection services, advice for tax minimization, estate planning, long-term care strategies, and more.
You can contact us at (704) 560.1573.