Dollars & Sense

How Secure is Social Security?

While you can’t control what will change with Social Security, you are in control of some key aspects of your retirement strategy.
Kate Warne, September 2017
Posted

For most people, having enough money during retirement is a major goal — and Social Security can play an important part in achieving that goal. But can this program continue for the long term?

Nearly 61 million Americans receive some form of Social Security today, and that number is increasing — a baby boomer turns 65 about every nine seconds. Social Security payments currently exceed tax revenue and are expected to do so for the foreseeable future, according to the Social Security Administration. In addition, there are concerns over the size of the U.S. debt and budget deficit.

According to the most recent government estimates, if no changes are made to the current program, Social Security would be unable to pay full benefits in 2034. Instead, it would pay out about 77 cents for every dollar that is owed — which means that everyone’s benefit would be about 25 percent less.

While various government proposals to strengthen Social Security are fairly simple and straightforward, they involve decisions that are not easy to make. Ideas include changes to:

• The earliest eligibility age (currently 62)

• Full retirement age (currently ranging from 66 to 67)

• Cost-of-living adjustments

• Payroll taxes

• Adjustments to benefits based on income level

For example, Social Security is financed by a 12.4 percent tax on wages up to the taxable-earnings cap, with half (6.2 percent) paid by workers and the other half paid by employers. This taxable wage base usually goes up each year — it rose from $117,000 in 2014 to $118,500 in 2015, but stayed put at that level for 2016.

While you can’t control what will change with Social Security, you are in control of some key aspects of your retirement strategy. Keep in mind that if your benefit is reduced, it stays lower for as long as you receive Social Security. This could have a profound effect on your retirement income stream for many years to come. And your selections don’t just affect you — they can have a permanent effect on your surviving spouse. Be sure you understand the long-term effects of your decision before you begin taking Social Security. Ultimately, we recommend considering your decision through a LENS — an acronym that stands for:

• Your life expectancy

• Your employment

• Your need

• Spousal considerations

You also control how much you save outside Social Security. Even though this benefit is an important part of your retirement income strategy, on average it makes up only about 40 percent of your pre-

retirement income. You will be responsible for generating most of your retirement income, and your investments will likely play a major role. Any proposed changes to Social Security will likely increase the amount you’ll need to save to provide for your retirement.

While challenges exist, Social Security can be strengthened and remain a dependable source of income in retirement. Remember, however, that you still share a major responsibility in “securing” a retirement that aligns with your goals. Your financial advisor can help you review your retirement strategy to help ensure it remains on solid ground.

Kate Warne, PhD, is an investment strategist at Edward Jones.

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