Social Security Benefits: A Brief Overview
No doubt about it, Social Security is a double-edged sword for American seniors.
On the one hand, the Social Security fund has developed into a crucial source of funds for tens of millions of Americans in retirement.
According to the Social Security Administration:
- For almost one in five (19%) of recipients, Social Security is their sole source of income.
- For 30% of recipients, Social Security accounts for 90% of their retirement income.
- More than half (56%) of those on Social Security rely on it for more than half of their income.
Yet simultaneously, Social Security faces a financial crisis today for many reasons. The gap between what Social Security has promised to pay and what it expects to collect is substantial and continues to grow. While seniors in or who are nearing retirement are safe, once the Baby Boomer generation begins to retire, the Social Security system will quickly face larger and larger deficits.
The Next Generation of Social Security
In the next few years, the Social Security trust funds are expected to start paying out more in annual benefits than the system collects in payroll and income taxes. The Social Security Administration says that once those deficits begin, they will continue to grow larger and never end. Why? Well, blame it on the Baby Boomers again. Here are some of the trends related to the Baby Boomer generation that will have a significant impact on the future of Social Security:
- Fewer workers per retiree. In 1950, 16 workers supported each Social Security recipient. Now there are barely three workers per recipient, and by 2030 the ratio will fall to two per beneficiary.
- People live longer. In 1935, the average 65-year-old was expected to live about 12.6 more years. Today, people who reach age 65 are expected to live more than 17 additional years, and by 2040, they will be expected to live at least 19 more years.
- More workers take early retirement. The trend toward early retirement weakens Social Security by decreasing taxable income earlier. As recently as 1960, 77% of people in their early sixties remained in the workforce. Today, that number has dropped to 55%. Instead of continuing to pay into the system, early retirees become a burden on those who still work.
That’s why it’s so important that America’s seniors should learn all they can about Social Security. With change coming—and nobody really knows when—maximizing your benefits isn’t a luxury, it’s a necessity.
How Social Security Works
The big advantage with Social Security, particularly as senior citizens are concerned, is that it gives seniors a lifetime retirement benefit via a monthly check that’s adjusted each year for inflation to seniors who qualify under these conditions:
- You must have what the government calls “credits” for covered work, generally satisfied by having at least 10 years in which you had substantial earnings that were subject to Social Security tax or self-employment tax.
- You must be over 62 years of age.
- You must apply for the benefit. You aren’t entitled to the benefit if you don’t file an application.
According to the Social Security Administration website, seniors can begin receiving benefits as early as age 62, or as late as age 70. Just know that the amount you receive in benefits depends on what age you elect to start receiving benefits.
For example, assuming a full benefit of $1,000 at age 66, you’d earn the following amount in benefits based on your retirement year:
Consequently, if you can afford to wait until age 70 to retire, chances are you’ll earn significantly more in Social Security benefits than you would if you opted to start receiving benefits at age 62.
Figuring out where you stand with Social Security, and where it stands with you, is a critical exercise for any senior nearing retirement.
For more information on Social Security visit theSocial Security website.
Written by senior finance expert Brian O’Connell.