Don't ignore Social Security as you approach retirement. Social Security delivers close to 40% of the income of elderly Americans. Roughly 40 million people currently collect retirement benefits and for millions, that money makes up 90% or more of their income. So instead of just assuming you'll start collecting at some point and that it will be enough, learn more about the critical program and start formulating a strategy to make the most of Social Security.
I've written before about smart Social Security moves we might all make -- such as incorporating Social Security income in our overall retirement plan, maximizing our benefits, and considering spousal strategies. Here are three more smart moves to make.
1. Learn what benefits you might claim -- you might be surprised
You may be aware of roughly how much money you can expect to from Social Security based on your earnings history. (If not, you can look up the Social Security Administration's record of your income and taxes paid into the Social Security system anytime, and see estimates of your future benefits, at its website.)
But don't stop there. You may be able to collect bigger benefits based on the earnings of someone else -- your spouse, your ex-spouse, or your late spouse. Spouses can collect up to 50% of their spouse's benefits, while widows and widowers can choose to receive 100% of their late spouse's benefit instead of their own. Even divorcees can collect benefits based on their ex's earnings, as long as they were married for 10 or more years and they haven't remarried. (It doesn't matter if the ex has remarried.)
2. Don't worry about Social Security running out of money
Next, don't let yourself get any grey hairs or lose any sleep worrying that the Social Security program will be running out of money soon and will be unable to pay you any benefits in retirement. Here's the scoop: Between taxes taken in and interest earned on them, less benefit checks written, the Social Security trust funds have been running a surplus in every year since 1984. Around 2020, the surpluses are likely to stop -- at which point the Social Security system can rely on incoming interest payments to make up the deficit -- for a while.
According to several government estimates, Social Security funds are likely to become insolvent between 2033 and 2037 if no changes are made. If that happens, payment checks won't disappear, but they'll likely shrink by about 25%. Changes very well may be made, though, to put the program on sounder ground. There are lots of ways in which the program can be strengthened. For example, fully 76% of the trust funds' shortfall could be eliminated by increasing the Social Security tax rate for employers and employees from its current 6.2% to 7.2% in 2022 and 8.2% in 2052. Taxing all of each worker's income, instead of just the first $127,200 of it, would also wipe out much of the shortfall. It's been estimated that 74% could be wiped out by eliminating the earnings cap over a 10-year period.
3. Keep up with developments in Washington
Unfortunately, though, there is a reason to worry about Social Security's future and the benefits to which you will be entitled. Before being elected, President Trump said he would leave Social Security alone. But since being elected, he has put advisors in place who have supported privatizing it and raising the retirement age to 69. (The retirement age used to be 65 for all, but it was later gradually increased to the current 67 for those born in 1960 or later.) For example, according to The Atlantic magazine in late January, "Mick Mulvaney, the nominee for budget director, told senators Tuesday that he'd recommend significant changes to entitlement programs -- even if they contradict the president's campaign pledges."
There are pros and cons for just about all suggested tweaks and overhauls of the program. For example, pushing the retirement age out further will help the program conserve funds -- but it will make life harder for those who want -- or need -- to retire earlier. Privatizing the program -- which means taking away much of the responsibility for investing the money that comes in and paying out promised benefits from the government and shifting it to individuals, leaving them more in charge of how their money is invested and, thus, how much they end up receiving in retirement. That can sound good and in some cases can result in bigger benefits. But it can also spell disaster for many people. After all, the average American isn't that well versed in investing and won't necessarily make the best decisions. A downturn in the market might hurt millions who retire at the wrong time. Essentially, with privatization, what are now guaranteed benefits will become far less guaranteed. The proposition is comparable to how 401(k) plans have been replacing pensions. Pensions offered defined payments in retirement, while 401(k) plan payouts depend on investment performance and leave workers shouldering all the risk.
It's smart in our current uncertain environment to keep up with developments in Washington and with proposals to change Social Security. Do more than that, though. Whether you like or hate proposed changes, be sure to let your representatives in Washington know your thoughts.