At one time, Social Security was a true safety net. As long as you paid in, there would be a tidy nest egg waiting for you at the end of the road. Even if you didn’t save much for retirement, you could rest easy knowing your basic needs would be taken care of.
These days, that net is fraying at the edges.
The future of Social Security is grim, and anyone not already drawing benefits has cause to worry. Things could always turn around, but blind optimism has never been the mark of a savvy consumer. If you’re expecting Social Security to cover the majority of your expenses in retirement, it might be time to reevaluate.
Read ahead for a breakdown of the current state of Social Security.
The Money May Run Out
In 2018, the Social Security Trustees Report estimated that the trust would run out of money in 2034. If that happens and the government hasn’t done anything to fix the problem, current payroll taxes would cover about 79% of benefits.1
There are two primary ways the government can fix the impending Social Security crisis: increase taxes or decrease benefits. Neither Congress nor the general public like those options, and it’s unclear how politicians will resolve the problem.
Even though the Social Security trust will run out, that doesn’t mean the program will end. Some form of Social Security will exist, but future generations will likely receive less than their parents and grandparents did.
Why Seniors Shouldn’t Rely on Social Security
One major problem with Social Security is that benefits don’t increase as quickly as expenses do. Since 2000, the cost of living has outpaced monthly Social Security benefits by 34%.2 Part of that difference comes from a 195% increase in Medicare Part B premiums and a 188% increase in annual out-of-pocket expenses for prescription drugs and other expenses. Seniors who rent will continue to see those costs rise while homeowners may have to deal with overinflated property taxes.
According to the Social Security Administration, more than 20% of married couples and 44% of individuals rely on Social Security checks for 90% of their income. Every dollar lost to inflation has a huge impact on a retiree’s budget.
To counteract the effects of Social Security’s decline, consumers need to take retirement into their own hands. That might include saving money in an IRA or 401k, especially if there’s a company match.
Most people should save between 10-15% of their salary for retirement, but the number might vary depending on individual factors. Someone who has access to a company pension might be able to save less than 15%, while a person supporting a disabled child would need to save more.
One way to increase your Social Security check is to delay it. A senior who starts drawing Social Security at age 66 will receive 100% of their stated benefits. If they decide to wait an extra year, they’ll receive an 8% boost. Waiting until age 70 will yield an extra 32%.3 That’s an increase no other investment can beat.
For seniors without an adequate nest egg of their own, delaying Social Security is one of the best ways to quickly improve their retirement portfolio.
1 Ambrose, Eileen. “Six More Myths About Social Security.” AARP. 2016.
2 O’Brien, Sarah. “This might be why your Social Security check doesn’t stretch as far as it once did.” CNBC. 27 July 2018.
3 “Benefits Planner: Retirement.” Social Security Administration.
AARP, CNBC, and SSA are not affiliated with ORM or its products.
Zina Kumok is a freelance writer and owner of www.consciouscoins.com.