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The Social Security system concerns every American who works and receives social security benefits in us. Unfortunately, Social Security's trust fund is projected to be depleted within the next few years. As of 2034, this would be the number of benefits that comprise 100 of someone's benefits. In general, it depends on whether we are taking disability or regular Social Security, and it also depends on the year. However, it isn't too far off.
So, let's discuss some of the proposed changes and what you can do about them. But, before going into deep, let's look at a little history of social security in the US: How Social Security first came into being and maybe lay out how we got into this predicament.
It is more factual as you understand this because we do believe it's quite important for all of us to have the facts on this. And this is, you know, it's tough because there are many Americans for whom Social Security is the majority of their monthly income, which will need to change in all likelihood.
It was after the Great Depression that President Roosevelt signed the c into law. The first payments started in 1940. So it's important to note two key facts in night tea around 1935 to 1940.
The first fact is that if you look at a birth rate chart in the U.S. You'll find that the birth rates per thousand from 1935 to 1940, those years when Social Security was signed into and when it started paying benefits, the birth rate then was almost double.
The average life expectancy was around 60 years of age, so that was when Social Security first came into the system and the calculations were made by the social security calculator about:
They might have a life expectancy average of about five years, so the benefits that were paid were only calculated for four or five to seven years, maybe even 10 for the people who had longevity.
This country has half as many births per thousand, and life expectancy is 77. Yet, the retirement age for full Social Security benefits is now 67 years old for those waiting in line. Now, workers must reach the age of 67 before they can retire or receive full benefits.
The benefit of Social Security right now is enhanced if you wait until you're at least 70 to start receiving it, so today, there are many more retirees than when it was first calculated.
We had the baby boomers, where the birth rate shot up with probably everyone in the government looking. That's great. We're going to be okay because we now have a lot of births, which means many workers are coming into the system to support the pay for Social Security. We know now that there were years during the baby boom generation when many of us were born, and then it dropped off.
As of current statistics, there are 179 million workers in this country, while 65 million are receiving benefits, which means just over two workers support one retiree. Thus, Social Security payments are reduced due to a declining birth rate. As a result of the way Social Security is structured, this is the case. Through Social Security taxes, Americans who are currently working fund Social Security payouts for retirees. The greater proportion of younger, active workers to older, retired workers, the more funding is available for social security amount in the us. Due to the declining birth rate, older workers will overwhelm those paying into the system, reducing payouts to retirees.
Talking about raising the age of full Social Security, what's called your FRA, your full retirement age. It is not yet clear whether Social Security benefits will be reduced or if both the full retirement age and the FRA will be raised. Nevertheless, when it was first started, the average retirement age was 55. The majority of retirees take benefits of social security in the USA and die within 5-10 years of retiring. As a result, people are now taking social security benefits and living for longer periods of time. It is not unheard of to start taking social security at 62 and live to be 92. There's a much higher likelihood of them taking 30 years now than when they first started. As you can see, these are all things that are difficult to calculate.
If you're younger, there's only one retirement that will be impacted by one person's retirement. If you don't take matters into your own hands and put money aside for your retirement, and obviously, that's your retirement. So there's only one person's retirement who will be affected, and that's you.
Ilene Slatko, CEO of DSS Consulting, offers several suggestions on how to plan for your money.
You can invest only in Treasury Securities in Social Security if you are contributing 6.2 percent, your employer is matching 6.2 percent, or you might be putting away 12.4 percent as self-employed. Accordingly, if you use the rule of 72, Social Security funds have grown at a slower rate at a time when interest rates are low.
In terms of investing those dollars, Social Security is very ineffective. We have done it because it provides a safety net, and a safety net must be safe if it provides a safety net.
In contrast, if you begin planning on having Social Security, either will not impact you. This is because investment in social security represents only a very small portion of your investment dollars or has no benefit. If you want to save more, you can increase the amount you put into a traditional IRA or a 401k.
By investing your funds well, you can beat the low growth rate that Social Security funds have been growing at. So, in conclusion, regardless of how scary it may be, how it may feel, and how it may sound, you can still control your retirement outcome.
Do you want to know more about Social Security in brief? myCPE hosts a live webinar, "Social Security and its Proposed Changes for 2023" by Ilene Slatko. Ilene Slatko is an expert educator on retirement planning, financial planning, estate planning, and behavioral finance subject areas. In this webinar, she will provide a brief analysis of the effects of the Social Security rate hike and the best options for supplementing Social Security income.
Imtiaz Munshi, CPA
