The annual report on Social Security’s financial condition was recently released, and many are worried about the program’s solvency. The annual cost of the program is expected to exceed its income for the next 75 years starting in 2020. And, the trust fund that covers retirement benefits is expected to be depleted by 2034. This seems grim, but it’s unlikely that the program will disappear. Here are 3 important things about Social Security to keep in mind.
This does not spell doomsday for Social Security
The current projections are based on estimated economic growth, tax collections, inflation, and other factors. If these exceed expectations, the trust fund will last longer. And, even when the reserves run out, the program will continue to receive funding from Social Security taxes indefinitely. It is estimated that taxes will be able to pay for 77% of Social Security benefits for the next 75 years.
Future changes to the program might not affect you
Those already receiving benefits are unlikely to be affected by future changes to Social Security. However, high-income retirees might see changes to their benefit in the future. It’s possible that taxpayers with incomes over $250,000 per year could see their benefits reduced, or taxed at a higher rate. Right now up to 85% of your benefit can be taxed. This could mean that it’s even more important for higher-income retirees to strategize when it comes to tax minimization and Social Security benefit maximization.
There are still strategies you can use to maximize your benefit
Even though there are reasons why you can’t rely solely on Social Security in retirement, it can still provide you with reliable income in retirement. This is especially valuable as lifespans increase. Since there may be changes to Social Security in the future, it’s important to have a strategy for maximizing your benefit. You can do this by working for at least 35 years, because your benefit is based on your average monthly earnings during your highest-earning 35 years.
There are good reasons to take Social Security benefits at any age, but don’t take them earlier than you planned just because you think the program is about to run out of money. If you start collecting Social Security at age 62, your benefit will be reduced. You will receive your full benefit between the ages of 65 and 67, depending on the year you were born, and you will receive 8% more than your full benefit for every year after that you delay. If you wait until you are 70, you will receive 132% of your full benefit, but no more than that if you delay longer.
It can be good to reassess your Social Security maximization strategy every few years, or when new laws are passed or reports come out. The professionals at O’Donnell Financial Group can help you with Social Security maximization strategies based on your unique needs and financial situation. If you don’t have a plan for when to start taking Social Security benefits or have an outdated plan, click here to schedule your no cost, no obligation financial review today.