2815: Social Security - Planning For It or Not In Your Future by Amanda of Women Who Money on Retirement Savings

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[00:00:59] [SPEAKER_03]: Social Security, planning for it or not in your future.

[00:01:03] [SPEAKER_03]: By Amanda of WomenWhoMoney.com

[00:01:05] [SPEAKER_03]: And I'm your host and personal finance enthusiast, Diana Merriam.

[00:01:10] [SPEAKER_03]: For now, let's get right to it and continue optimizing your life.

[00:01:18] [SPEAKER_03]: Social Security, planning for it or not in your future.

[00:01:22] [SPEAKER_03]: By Amanda of WomenWhoMoney.com

[00:01:25] [SPEAKER_03]: No matter when you retire, you want to know what role Social Security will play in your financial future.

[00:01:31] [SPEAKER_03]: Will it go away?

[00:01:32] [SPEAKER_03]: How much can you expect?

[00:01:34] [SPEAKER_03]: When should you start benefits?

[00:01:37] [SPEAKER_03]: When Social Security started in 1935,

[00:01:40] [SPEAKER_03]: it was created to provide support for workers and their families who could no longer work due to age, disability, or death.

[00:01:46] [SPEAKER_03]: It's comprised of the Old Age and Survivors Insurance Program for retired workers, their families, and survivors of deceased workers,

[00:01:54] [SPEAKER_03]: and the Disability Insurance Program for disabled workers and their families.

[00:01:59] [SPEAKER_03]: Today, it remains a primary source of income for many retirees and aging Americans.

[00:02:04] [SPEAKER_03]: Yet funding issues create some uncertainty about the future of these programs.

[00:02:09] [SPEAKER_03]: In this article, we'll tackle these questions so you can determine the role Social Security might play in your financial future.

[00:02:17] [SPEAKER_03]: Will Social Security go away?

[00:02:20] [SPEAKER_03]: Social Security is unlikely to change much in the foreseeable future,

[00:02:24] [SPEAKER_03]: but eventually it will face challenges and look different than it does today.

[00:02:28] [SPEAKER_03]: Concerns about Social Security's longevity stem from future funding concerns.

[00:02:34] [SPEAKER_03]: For years, the programs operated with a surplus.

[00:02:36] [SPEAKER_03]: The amount paid to workers and their families was less than it took in.

[00:02:41] [SPEAKER_03]: With lower life expectancies and a smaller aging population,

[00:02:45] [SPEAKER_03]: trust fund reserves grew for decades.

[00:02:48] [SPEAKER_03]: Now, with lower birth rates, so fewer people paying in,

[00:02:52] [SPEAKER_03]: and a growing aging population, more people receiving benefits,

[00:02:57] [SPEAKER_03]: reserves in the trust funds are disappearing.

[00:03:00] [SPEAKER_03]: That doesn't mean Social Security will go away,

[00:03:03] [SPEAKER_03]: but future changes to the program are likely.

[00:03:06] [SPEAKER_03]: Those changes will be up to Congress and may include higher taxes on payroll earnings to fund the program,

[00:03:13] [SPEAKER_03]: reduction in monthly benefits,

[00:03:15] [SPEAKER_03]: increased eligibility ages,

[00:03:17] [SPEAKER_03]: means testing, and more.

[00:03:19] [SPEAKER_03]: The future of Social Security and retirement planning.

[00:03:22] [SPEAKER_03]: The Social Security Board of Trustees expects to be able to pay 100% of benefits through 2035.

[00:03:30] [SPEAKER_03]: Around this time, the reserves run out,

[00:03:32] [SPEAKER_03]: and the program will rely solely on taxes for funding.

[00:03:36] [SPEAKER_03]: Then the government could reduce benefits, increase taxes, or both.

[00:03:40] [SPEAKER_03]: With changes on the horizon, you might worry about the future of benefits,

[00:03:44] [SPEAKER_03]: but even younger folks can likely expect some form of benefits from Social Security.

[00:03:50] [SPEAKER_03]: Still, the younger you are, the better the chance benefits will be different than they are today.

[00:03:55] [SPEAKER_03]: This ambiguity might mean you exercise more caution with retirement planning.

[00:04:00] [SPEAKER_03]: In The Simple Path to Wealth, author J.L. Collins advises saving for retirement on your own,

[00:04:06] [SPEAKER_03]: pretending that Social Security won't exist.

[00:04:08] [SPEAKER_03]: If and when you receive benefits, consider it a bonus.

[00:04:13] [SPEAKER_03]: What you can expect, how to plan for Social Security in retirement.

[00:04:17] [SPEAKER_03]: All that talk of uncertainty can be worrying,

[00:04:20] [SPEAKER_03]: but it's best not to write off Social Security altogether.

[00:04:24] [SPEAKER_03]: Depending on your age,

[00:04:26] [SPEAKER_03]: Social Security could play a significant role in your retirement finances as you grow older.

[00:04:30] [SPEAKER_03]: We'll help you determine what you can expect from Social Security to help you plan.

[00:04:35] [SPEAKER_03]: How to find your Social Security estimate.

[00:04:38] [SPEAKER_03]: When you pay Social Security payroll taxes,

[00:04:41] [SPEAKER_03]: the money goes to current beneficiaries,

[00:04:43] [SPEAKER_03]: and any extra money goes into the Social Security trust fund or reserves.

[00:04:48] [SPEAKER_03]: In other words, the money you pay isn't in an account just for you.

[00:04:52] [SPEAKER_03]: When you work and get paid,

[00:04:54] [SPEAKER_03]: you collect credits towards your Social Security benefits.

[00:04:58] [SPEAKER_03]: Credits determine if you're eligible for benefits,

[00:05:00] [SPEAKER_03]: not how much you receive.

[00:05:01] [SPEAKER_03]: You need 40 credits to qualify for benefits.

[00:05:05] [SPEAKER_03]: If you have less, you don't qualify.

[00:05:08] [SPEAKER_03]: The credits are cumulative,

[00:05:09] [SPEAKER_03]: so even if you take a break from work,

[00:05:12] [SPEAKER_03]: you will collect more credits if you go back to work.

[00:05:15] [SPEAKER_03]: Your highest 35 years of earnings

[00:05:17] [SPEAKER_03]: determine your estimated Social Security benefit amount,

[00:05:20] [SPEAKER_03]: but the amount you get also depends on when you start collecting benefits.

[00:05:24] [SPEAKER_03]: To find your benefits estimate,

[00:05:26] [SPEAKER_03]: go to the Social Security site and create an account.

[00:05:29] [SPEAKER_03]: Here you can check records and find out where you stand right now.

[00:05:34] [SPEAKER_03]: How to decide when to start Social Security benefits.

[00:05:37] [SPEAKER_03]: You have options on when to start monthly benefits.

[00:05:41] [SPEAKER_03]: The benefit amount you receive each month

[00:05:43] [SPEAKER_03]: increases as you age up until the age of 70

[00:05:46] [SPEAKER_03]: when you hit the maximum amount.

[00:05:48] [SPEAKER_03]: And if you keep working beyond the full retirement age,

[00:05:51] [SPEAKER_03]: your monthly benefit can continue to go up.

[00:05:53] [SPEAKER_03]: Here are the ages for tiered Social Security benefits.

[00:05:57] [SPEAKER_03]: Early retirement age.

[00:05:59] [SPEAKER_03]: At age 62, you can start collecting a reduced benefit amount.

[00:06:04] [SPEAKER_03]: Full retirement age.

[00:06:06] [SPEAKER_03]: If you were born between 1943 and 1954,

[00:06:10] [SPEAKER_03]: full retirement is age 66.

[00:06:12] [SPEAKER_03]: If you were born after 1955, it's age 67.

[00:06:16] [SPEAKER_03]: And delayed retirement age.

[00:06:19] [SPEAKER_03]: Your benefit continues to rise until age 70 when it's capped.

[00:06:24] [SPEAKER_03]: Things to consider when deciding whether to start benefits.

[00:06:28] [SPEAKER_03]: Number one, can you afford to wait?

[00:06:31] [SPEAKER_03]: The longer you wait to take benefits,

[00:06:33] [SPEAKER_03]: the more you will get up to age 70.

[00:06:36] [SPEAKER_03]: Number two, are you still working?

[00:06:38] [SPEAKER_03]: You might delay starting your Social Security

[00:06:41] [SPEAKER_03]: if you aren't to full retirement age and if you can afford it.

[00:06:44] [SPEAKER_03]: Depending on your income,

[00:06:46] [SPEAKER_03]: working might even boost your benefit amount.

[00:06:49] [SPEAKER_03]: Number three, do you have a pension

[00:06:51] [SPEAKER_03]: from a government or nonprofit organization?

[00:06:54] [SPEAKER_03]: If you have a pension and didn't pay Social Security taxes,

[00:06:57] [SPEAKER_03]: it might lower your available benefits.

[00:07:00] [SPEAKER_03]: And number four, your spouse's benefit.

[00:07:03] [SPEAKER_03]: Determine how one spouse's benefits

[00:07:05] [SPEAKER_03]: can impact the other spouse's survivor benefits.

[00:07:09] [SPEAKER_03]: Can you work and get Social Security?

[00:07:11] [SPEAKER_03]: The short answer is yes.

[00:07:14] [SPEAKER_03]: But if you take early retirement benefits

[00:07:16] [SPEAKER_03]: and continue working,

[00:07:17] [SPEAKER_03]: benefits get reduced if you earn over a specific amount.

[00:07:21] [SPEAKER_03]: If you are full retirement age,

[00:07:23] [SPEAKER_03]: income won't affect your benefits.

[00:07:24] [SPEAKER_03]: And benefits will be recalculated

[00:07:26] [SPEAKER_03]: to include extra working years.

[00:07:29] [SPEAKER_03]: But depending on your income,

[00:07:30] [SPEAKER_03]: you might owe taxes on a percentage of your benefits.

[00:07:34] [SPEAKER_03]: Are Social Security benefits taxed?

[00:07:37] [SPEAKER_03]: Whether you pay taxes on Social Security benefits

[00:07:40] [SPEAKER_03]: depends on your taxable income,

[00:07:42] [SPEAKER_03]: but you never pay taxes on more than 85% of your benefits.

[00:07:47] [SPEAKER_03]: Income levels for taxes on Social Security benefits.

[00:07:51] [SPEAKER_03]: You will pay taxes up to 50% of your Social Security benefits

[00:07:55] [SPEAKER_03]: if your income is between $25,000 and $34,000

[00:07:59] [SPEAKER_03]: for an individual

[00:08:00] [SPEAKER_03]: and $32,000 to $44,000 for a couple filing jointly.

[00:08:05] [SPEAKER_03]: And you will pay taxes on up to 85% of your Social Security benefits

[00:08:10] [SPEAKER_03]: if your income is over $34,000 for an individual

[00:08:13] [SPEAKER_03]: or $44,000 for a couple filing jointly.

[00:08:17] [SPEAKER_03]: Taxable income is your adjusted gross income

[00:08:20] [SPEAKER_03]: plus your non-taxable interest income

[00:08:24] [SPEAKER_03]: plus 50% of your Social Security benefits.

[00:08:27] [SPEAKER_03]: Final thoughts on Social Security

[00:08:29] [SPEAKER_03]: and how to plan for it in retirement.

[00:08:32] [SPEAKER_03]: The future of Social Security is a bit hazy,

[00:08:35] [SPEAKER_03]: but most of us will receive some income.

[00:08:38] [SPEAKER_03]: Whether we'll face a reduction in benefits over time

[00:08:41] [SPEAKER_03]: remains to be seen.

[00:08:42] [SPEAKER_03]: Still, it's essential to know

[00:08:44] [SPEAKER_03]: Congress will need to change the program

[00:08:46] [SPEAKER_03]: and it's likely to impact benefits in the future.

[00:08:48] [SPEAKER_03]: A prudent strategy is to save and invest

[00:08:51] [SPEAKER_03]: without heavily relying on Social Security benefits in retirement.

[00:08:54] [SPEAKER_03]: But it's still crucial to know your estimated benefits

[00:08:58] [SPEAKER_03]: and their tax implications.

[00:08:59] [SPEAKER_03]: All of this information will help you

[00:09:01] [SPEAKER_03]: when planning for your retirement income.

[00:09:07] [SPEAKER_03]: You just listened to the post titled

[00:09:09] [SPEAKER_03]: Social Security, Planning for It or Not in Your Future

[00:09:12] [SPEAKER_03]: by Amanda of womenwhomoney.com

[00:09:15] [SPEAKER_03]: And I'll be right back with my commentary.

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[00:10:21] [SPEAKER_03]: I learned a lot from this article

[00:10:23] [SPEAKER_03]: because honestly,

[00:10:23] [SPEAKER_03]: I don't know too much about Social Security.

[00:10:26] [SPEAKER_03]: I'm with JL Collins in that

[00:10:27] [SPEAKER_03]: I assume it just won't be available for me

[00:10:29] [SPEAKER_03]: or that the benefit would be such a small amount

[00:10:32] [SPEAKER_03]: that it's not worth thinking about.

[00:10:33] [SPEAKER_03]: I'm pretty much a typical millennial in that regard.

[00:10:36] [SPEAKER_03]: According to a recent Transamerica survey,

[00:10:39] [SPEAKER_03]: 80% of millennials worry that Social Security

[00:10:42] [SPEAKER_03]: won't be around when we need it.

[00:10:43] [SPEAKER_03]: And while none of us can know the future,

[00:10:46] [SPEAKER_03]: I did see a few compelling arguments

[00:10:48] [SPEAKER_03]: as to why some experts feel

[00:10:50] [SPEAKER_03]: that Social Security will survive.

[00:10:52] [SPEAKER_03]: While the trust fund is scheduled

[00:10:54] [SPEAKER_03]: to be depleted by 2035,

[00:10:57] [SPEAKER_03]: it's probable Congress will intervene

[00:10:59] [SPEAKER_03]: as it did in 1977 and 1983

[00:11:02] [SPEAKER_03]: to strengthen Social Security's finances.

[00:11:05] [SPEAKER_03]: That's because Social Security

[00:11:07] [SPEAKER_03]: is an enormously popular program

[00:11:09] [SPEAKER_03]: with bipartisan support

[00:11:11] [SPEAKER_03]: and influential lobbies,

[00:11:13] [SPEAKER_03]: including the almighty AARP.

[00:11:16] [SPEAKER_03]: I also might be underestimating

[00:11:18] [SPEAKER_03]: the value of Social Security to begin with.

[00:11:20] [SPEAKER_03]: The Urban Institute estimates

[00:11:22] [SPEAKER_03]: that millennials are projected

[00:11:24] [SPEAKER_03]: to receive twice as much

[00:11:25] [SPEAKER_03]: as the current benefit,

[00:11:26] [SPEAKER_03]: about a million dollars

[00:11:27] [SPEAKER_03]: for an average income single adult

[00:11:29] [SPEAKER_03]: and two million for a couple.

[00:11:31] [SPEAKER_03]: Some Social Security experts

[00:11:33] [SPEAKER_03]: say that a worst case scenario

[00:11:35] [SPEAKER_03]: would be to assume you'll get 70 to 80%

[00:11:38] [SPEAKER_03]: of what your Social Security statement projects.

[00:11:40] [SPEAKER_03]: And here's something I had no idea about.

[00:11:43] [SPEAKER_03]: You should make sure your earnings

[00:11:45] [SPEAKER_03]: are reported correctly

[00:11:46] [SPEAKER_03]: to Social Security every two to three years.

[00:11:49] [SPEAKER_03]: Your future Social Security check

[00:11:51] [SPEAKER_03]: will be based on your 35 highest earning years,

[00:11:54] [SPEAKER_03]: but they need to be reported accurately,

[00:11:57] [SPEAKER_03]: which doesn't always happen.

[00:11:58] [SPEAKER_03]: You can correct those errors,

[00:12:00] [SPEAKER_03]: but it can be really difficult

[00:12:02] [SPEAKER_03]: if you catch them decades from now.

[00:12:05] [SPEAKER_03]: If your employer goes out of business

[00:12:07] [SPEAKER_03]: before you can catch any errors,

[00:12:08] [SPEAKER_03]: the needed documents may be unavailable.

[00:12:11] [SPEAKER_03]: So I, for one, will be setting up an account

[00:12:13] [SPEAKER_03]: on the Social Security Administration's website

[00:12:15] [SPEAKER_03]: to review my earnings,

[00:12:16] [SPEAKER_03]: and I hope you do too.

[00:12:18] [SPEAKER_03]: And that should do it for today.

[00:12:20] [SPEAKER_03]: Have a happy rest of your day,

[00:12:22] [SPEAKER_03]: and I'll see you on the Friday show tomorrow,

[00:12:24] [SPEAKER_03]: where your optimal life awaits.