Every time I bring up Social Security estimated payments for the first time with either prospects or clients, the response is always the same:
I am to receive “X” amount if there is any money left.
It is a common fear that Social Security will not be solvent when you hit the magical age of full retirement and are eligible to receive a Social Security check each month.
Since most of my clients and prospects are in their 50’s or 60’s when we first started work with them, the likelihood that they will be substantial changes in this groups’ payments is highly unlikely.
Currently there are 174 million contributors into the Social Security system with the total income going into the system in year 2017 totaling $997 billion. Currently, the system pays 63 million recipients a total of $953 billion in payments in the year 2017.
Most of the income going into the system is from tax money contributed by workers and their employers. The current tax on workers’ wages is 12.4% which is paid equally between the employer and employee. Self-employed workers pay the entire amount. This payroll tax will be levied up to $132,900 in wages in 2019. These wage taxes account for 88% of the incoming dollars. Taxes on Social Security benefits account for 4%.
Currently, workers are eligible to receive Social Security retirement benefits as early as age 62; however, workers who wait until age 70 can obtain the largest benefit available to them. Of the current $953 billion paid out 2017, 84% was given out as benefits to retirees or the survivors. 15% of this amount was paid to benefits of disabled workers.
Unfortunately, too many people begin to take Social Security payments as soon as they are eligible for early payments which for the current generation receiving them is approximately age 62. Congress increased the age individuals can take early retirement and full retirement back in 1983.
For those born between 1943 and 1954, they can collect Social Security at age 62, but would only receive 75% of the full benefit. The percentage increases until the full retirement age of 66 years old when they would receive hundred percent of the benefit. However, if the individual was able to wait to begin collecting Social Security until the age 70 then that benefit would increase to 132%.
The actual amount that you would receive depends on how much you earned through the years and if you qualified by working and contributing to the Social Security system for 35 years.
For a married couple, having the higher earner wait until age 70 is important for the following reason. A spouse can get one half of the Social Security amount received by a spouse while the spouses is alive. But the real benefit comes if the spouse would to die. Then the surviving spouse receives the spouse’s full monthly benefit which hopefully is the amount that they received at age 70. This is the amount that they would receive the cost of living (COLA) increases awarded by the Social Security.
The tax on Social Security benefits is one area that I believe will be increased over the years to allow the program to stay solvent into the future. However, increasing the amount of wages that is taxed and taxing the income received if the recipient has additional income from various sources is likely the outcome of a compromise.
So, I would be less worried about what Congress will do the future to future Social Security benefits and more concerned about trying to have a strategy that would allow for you to wait until the age of 70 to receive full Social Security. Obviously, individual circumstances vary so having a discussion with a competent financial advisor would be wise.
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