August 10, 2016
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Every month we will take a stab at answering some of the “hot button” questions posed by our wonderful clients or find good resources that have answered the questions adequately.
One of the big questions facing us today is the pressure being placed on the social security system. Many clients have asked, will social security exist when I retire?
People have traditionally seen Social Security benefits as the foundation of their retirement planning programs. The Social Security contributions deducted from workers’ paychecks have, in effect, served as a government-enforced retirement savings plan.
However, the Social Security system is under increasing strain. Better health care and longer life spans have resulted in an increasing number of people drawing Social Security benefits. As the baby boom generation (those born between 1946 and 1964) has begun to retire, even greater demands are being placed on the system.
In 1950, there were 16.5 active workers to support each person receiving Social Security benefits. In 2015, there were only 2.8 workers supporting each Social Security pensioner. And it is projected that there will be only 2.1 active workers to support each Social Security beneficiary by 2035.1
Although Social Security payments are typically adjusted for inflation, your own income and expenses may rise at a faster pace. And you might have to wait longer than you anticipated to qualify for full benefits.
It used to be that full benefits were available after you reached age 65. But since 2003, the age to qualify for full benefits has been increasing on a graduated scale based on year of birth. By 2027, the age to qualify for full Social Security benefits will have increased to age 67, where it is currently scheduled to remain.
That means you may have to wait longer to qualify for full Social Security benefits to start replacing a smaller percentage of your pre-retirement income.
When calculating the income you will have in retirement, you might recognize that Social Security benefits may play a more limited role. Some financial professionals suggest ignoring Social Security altogether when developing a retirement income plan. We believe social security will be around at some age, however the age will slowly adjust upward for the younger crowd to allow full funding to occur. It is best to simply plan for no social security if you are under age 45, with a healthy understanding it will likely exist but possibly at a later date than currently anticipated. View it as your safety net, just as the original creators intended.
Source: 1) Social Security Administration, 2015
Note: The Social Security Administration no longer mails an annual estimated benefit statement to all taxpayers. You can view your statement online by visiting www.ssa.gov/myaccount and creating your own personal Social Security account on the Social Security website.
The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC / Evergreen Wealth Management, LLC.
Evergreen Wealth Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.