Social Security is a benefit that impacts the lives of over 16 million Americans ages 65 and over. And for many of those individuals, it helps to sustain their cost of living. Social Security benefits have been in the pipeline for decades (since 1935), and working Americans have come to depend on it.
Yet, more and more Americans are losing hope, as 45% of individuals worry a great deal about the fate of Social Security in the coming years. And at least 33% of those not yet retired are counting on this benefit to help them through their retirement years.
Are you counting on Social Security benefits in your retirement? If so, should you be concerned that it will still be around? Maybe you should be.
Why Worry About The Existence of Social Security Benefits?
While it may seem like Social Security benefits are a given, you should know they’re not. This is how Social Security revenue is derived:
- 90.6% comes from a 12.4% tax on the earnings of most American workers (FICA or SECA taxes)
- 4% comes from federal income taxes some Social Security recipients pay on their benefits.
- 5.4% comes from interest on trust fund holdings through U.S. Treasury securities.
Even though nearly $3 trillion was in reserves at the end of 2022, Social Security benefits are being paid out much higher than what’s going in. That’s partly due to the significant number of baby boomers (born from 1946 to 1964) who are living longer and collecting benefits for a more extended period of time. In addition, fewer workers are paying into the system, thanks partly to lower birth rates overall. Put all of this together, and you have the recipe for a perfect storm of the Social Security system.
If no changes are made soon, the system will run through the trillions of dollars that are in reserves by the end of 2034 or sooner. That won’t mean the end of Social Security, but it will at least mean a decrease in what recipients would otherwise receive in benefits. Those benefits could be cut by nearly 25%.
Is Social Security Enough To Live On In Retirement?
While millions of Americans count on Social Security benefits to keep them afloat in their retirement years, the average Social Security payment is about $1,800 a month. This is now.
By the end of 2023, it could be cut nearly 25%. The poverty line is about $1,200 a month for a single person. Even now, before the scare of the cut of social security, Americans depending solely on Social Security benefits to live on are standing on some very thin ice.
With inflation moving at a higher-than-normal rate (usually about 3% a year), Social Security payments alone are unlikely to cover Americans’ basic living expenses to survive.
Millennials Have Time Going For Them
What does this mean to you if Social Security won’t even affect you for 20 to 40 years down the road? It means you still have time. Plan to have it only be icing on the cake rather than depend on Social Security benefits in retirement. Social Security should not be your sole source of income in retirement. In order for that to be the case, you have to start planning now.
Take advantage of 401(k) plans at your place of employment to start building your retirement fund. Ensure you contribute enough to get the full match your employer offers. Never give up free money. If your job doesn’t offer that or you’re self-employed, start an Individual Retirement Account (IRA). Always try to contribute the maximum amount.
The Bottom Line
Social Security may never end, but even if it does, your goal is to not be affected by it. If Social Security was to end, millions of homes would be impacted, and many Americans would live below the poverty average, causing a severe poverty crisis nationwide.
The good news is time is perfectly positioned for you to start building your retirement savings and not rely on Social Security benefits as your main source of income.
Read More:
- 3 Ways Millennials Can Jumpstart Their Retirement Plans
- Robinhood Now Offers the Only IRA With a 1% Match
