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How Secure is Social Security?
Like most kids, my grandchildren Posey and Hudson love Christmas. Here is a picture of them last year after we decorated our tree at home.
My guess is that Posey, Hudson, and my other four grandkids will not be thinking about their future Social Security benefits when Christmas rolls around this year, which is good for them, because their thoughts would not be merry. The latest projections from the folks who run the Social Security trust fund suggest that the benefits scheduled under current law can be paid in full to recipients only until 2034. Their numbers also show that Social Security expenses are estimated to exceed income by at least 20% over the next 75 years. Yikes!
Despite the awful news, Social Security is still one of the primary sources of income for many Americans, and it defies imagination that our leaders in Washington, DC, will not do something to fix it. We’ll see. In the meantime, it might help to have some basic information about how this important program works (under current law). The following information1 is not complete and it helps to work with a financial planner (like me) to figure out the details. But, here are some basics to get you started:
• Benefits are first payable to a retired worker at the age of 62, but those benefits will be permanently reduced, unless you wait until your…
• …Full Retirement Age (FRA), at which you will collect your full benefit. For example, for folks born between 1943 and 1954, your FRA is 66.
• Workers who wait to claim until after FRA will receive a Delayed Retirement Credit added to their benefit. A worker may delay benefits until age 70. For those born in 1943 or later, the DRA is 8% per year.
• In general, to qualify for benefits, you need 40 Earnings Credits, i.e., you must work 10 years and pay Social Security taxes during that time. In 2023, a worker earns one credit for each $1,640.00 of covered earnings, up to a maximum of four credits per year. Even if your job is part-time or doesn’t pay a lot, the earnings still count, and that’s a good deal for you.
• The calculation has some nuances and adjustments, but, basically, your initial monthly benefit is calculated on your highest 35 years of earnings. If you have fewer than 35 years of earnings, the years with no earnings are entered as zeroes in the calculation, which results in a lower monthly benefit.
• A widow or widower who is at least 60 years of age can receive the deceased worker’s Social Security benefit. The amount depends on several factors, such as whether the worker was receiving a reduced benefit. In addition, benefits are payable to a young widow or widower who is still caring for a deceased worker’s children who are under the age of 16, or who are disabled.
• Automatic Cost of Living Adjustments (COLAs) went into effect in 1975 and have been applied to benefits every year since then, except in 2010, 2011, and 2016.
A lot of Christmases will go by before my grandkids start thinking about Social Security, but you might want to. Despite the possible financial woes of the program, it is a vital part of America’s retirement picture, and it might be part of yours, as well. I can’t begin to guess about how to fix it, but I do know that everyone needs a financial plan. If you don’t have one, call me today.
Mike Rich, CFP®
Pontchartrain Investment Management
2065 1st Street, Slidell, LA 70458
985-605-5066
Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
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