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What to Expect from Social Security

October 2010

Every year the Social Security Administration (SSA) sends you a personalized statement.  In the past you may have tossed it out with the junk mail.  In fact, it kind of looks like junk mail.  Don’t toss it!  It contains a lot of good information – information you need to understand to plan your future.  You may be surprised by some of the information it includes. No matter what your prospects for a financially secure, post-65 future, it’s helpful to factor in that monthly check from Uncle Sam – if you are eligible.

What your social security statement tells you

Your statement spells out a rough estimate of how much you can expect to receive in Social Security payments, depending on when you decide to start collecting.  You can start as early as 62 or as late as 70.  And the difference is huge!  Here is an example:

Conventional wisdom, based on actuarial tables, used to be that we should all start collecting at 62, because with life expectancy at ~72 years, you would accumulate a greater total amount by the time you die if you start collecting it as early as possible.  Today, however, with life expectancy approaching 80, and many people living into their 90s, if you are able to delay those payments, you have a greater assurance for a comfortable elder life with larger monthly checks.  It’s an individual choice, but an important one, so don’t take it lightly or make a hurried decision.

The other reason to open that SSA envelope is to check the accuracy of their records.  You and your employer share the responsibility for keeping accurate records and submitting accurate documents to the government.  The SSA updates your records each time your employer (or you, if you are self-employed) reports your earnings.  It’s your earnings that determine your benefit amount.  When the government calculates that figure, it is based on your average earnings over your lifetime.  If their records are wrong, you may not receive all the benefits to which you are entitled.

Will Social Security change in the near future?

Social Security policies and the way the program is structured are almost sure to change in the coming decade.  In 2010, for the first time since 1983, Social Security will pay out more than it takes in. Decreased tax revenue caused by the recession is to blame. This situation should be temporary, but that depends on unemployment trending downward. The fund for Social Security has a surplus which will take care of negative balances (including this year), but the money will begin to completely dry up when the program’s solvency ends.

The true ‘sword of Damocles’ is the huge demographic bubble of baby boomer retirees. There are 3.2 workers for each recipient today. According to the Social Security Administration, that number will drop to 2.1 by 2034. The Congressional Budget Office currently estimates that in 2037 Social Security will no longer be solvent.

What does this mean for you and me, as baby boomers?  It’s hard to say.  Given the current political climate, it is unlikely that changes will be imposed on current recipients of Social Security monies OR on those in line to begin collecting within the next 10 years.  However, I believe we will see changes made to one or both of the following:

  • The age of eligibility
  • Eligibility requirements

Is that a hard pill to swallow?  Yes, it is, but there doesn’t seem to be any alternative if future generations are to be able to enjoy the same opportunities that Social Security has afforded us - their parents and grandparents.