Why I'm Not Counting On Social Security, and Neither Should You

The Social Security program is critical for most older Americans. It delivers benefits to about 67 million people, and those benefits make up about 30% of the income of elderly folks. Better still, Social Security lifts people out of poverty. About 38% of older Americans would have been living in poverty in 2020 if not for Social Security, per the Center on Budget and Policy Priorities.

That said, I'm not counting on Social Security for a lot, and you might want to do the same. Here's why.

Image source: Getty Images.

It's not a lot of income

Social Security benefits are not enough for most people to live on. It delivers about 40% of preretirement income, on average, and the average monthly retirement benefit was recently just $1,828 -- roughly $22,000 per year. That's not far above the federal poverty line for one-person households, which is $14,580 for 2023.

Note, too, that while that $22,000 is an average -- meaning that millions collect more than that -- no one is collecting a huge sum. The maximum monthly benefit is $4,555 for this year, totaling about $54,660. That's much better than $22,000, but very few people will qualify for it.

So while I am counting on getting some income from Social Security in my retirement, I'm not counting on it being a lot.

The program faces challenges

The other key reason why I'm not counting on Social Security for much is this: The program as it stands right now faces some big challenges, and future beneficiaries may not receive their full benefits.

Here's what's going on: There's an important ratio -- of workers contributing to Social Security to beneficiaries collecting Social Security -- and it's been shrinking, as people have been retiring earlier and living longer:

Data source: Social Security Administration. 

According to the 2022 Social Security Trustees Report, the current Social Security surplus will be depleted by 2035. That doesn't mean the well will run dry -- rather, it means that incoming dollars won't cover outgoing obligations. So beneficiaries will get less than the benefits to which they're entitled. The latest estimate is that they'd receive around 80% of what they were entitled to. That's not great, but 80% is at least better than 70% or 60%.

This bleak future is not guaranteed, though. Congress can take steps to restore Social Security's ability to pay full benefits -- and can even make it stronger. There's a decent chance they will, too, as not doing so will be financially harmful to their constituents.

One simple fix is to raise the tax rate that generates income for Social Security. Right now, most workers pay 6.2%, with their employers contributing an additional 6.2%, for a total of 12.4%. (Self-employed people pay the entire 12.4% themselves.) It's been proposed to hike that total tax rate to 14.8% (7.4% for workers) or more over time.

There have been other proposals, too, such as taxing all of workers' earnings for Social Security. Right now, earnings up to $160,200 are taxed, with higher earners paying nothing on incomes above that. If all earnings are taxed (or the cap raised higher), more money will flow into Social Security's coffers.

These concerns about Social Security may not be delightful, but they also don't portend doom. There's reason to be hopeful that Social Security will still be around, delivering critical income, when you and I need it. It can't hurt to contact your congressional representatives, though, to let them know your thoughts.