Social Security Benefits
Should I rely on them for my Retirement?
What you may not know about our Social Security Administration, and how it can affect your Social Security Benefits and financial future.
As a Financial Advisor with a Certified Financial Planner® Professional designation who has conducted over 5000 financial planning meetings during the past decade, the topic of "My Social Security", and if it will "be there" for my clients retirement, has come up numerous times. This is certainly a valid concern and is becoming more relevant every year as the population of our country continues to age.
In order to have a better understanding of what Social Security is I first want to tell you where & how it originated.
Otto Von Bismark
History of the Social Security Administration
It all started with Otto Von Bismark’s ‘old-age social insurance program’ in 1889, in Prussia. You may be thinking, well how the heck did a program from 19th century Prussia turn into our Social Security system?
Well, how did Otto’s system work? According to the Social Security Administration, Otto’s system “provided contributory retirement benefits and disability benefits as well. Participation was mandatory and contributions were taken from the employee, the employer and the government. Coupled with the workers' compensation program established in 1884 and the "sickness" insurance enacted the year before, this gave the Germans a comprehensive system of income security based on social insurance principles. (They would add unemployment insurance in 1927, making their system complete.)”
Essentially this original system was a way to protect and support not only the working people, but the entire economy so that people could retire with a sense of economic security that was supported by basically everyone.
This system was used as one of the main building blocks for the Social Security system we use today. Our system, in its current form, came into existence on August 14, 1935, being signed into law by President Roosevelt. To list the full act and all the changes over the years is simply way too much for this blog post. You can visit the Social Security Administration’s website for a full history. Thus, the system we have today was put in place as an economic security measure to not only force us to save, but that we would have a source of guaranteed income in the future.
How do Social Security Benefits affect my retirement plan?
Due to a variety of economic, demographic, and political changes the Social Security & Medicare trust funds are now in a perilous state, affecting the very retirement people have been working towards for decades. Any American who is paying Social Security & Medicare taxes receives an annual statement of benefits, which is supposed to help you plan for the future by telling you what benefits you can expect when you ‘retire’. If you can’t find this statement you can use the Social Security Retirement Estimator to get a pretty good idea of your projected benefits.
Here in lies the problem, the Social Security and Medicare Trust Funds are going broke!
According to the 2016 Annual Report by the Social Security and Medicare Boards of Trustees, “The Trustees project that the combined trust funds will be depleted in 2034”, and that “The Trustees project that the Medicare Hospital Insurance (HI) Trust Fund will be depleted in 2028”.
OASI, DI, and HI Trust Fund Ratios
[Asset reserves as a percentage of annual cost]
In other words, for every dollar you pay into these trust funds, when you go to retire you will get back about only 75 cents! Now that should be alarming and a wakeup call to us all. The trustees conclude by saying; “Lawmakers have many policy options that would reduce or eliminate the long-term financing shortfalls in Social Security and Medicare. Lawmakers should address these financial challenges as soon as possible. Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.” I completely agree that things need to change, but will our political system figure it out in time, or at all for that matter?
Apply for Social Security
Although the current and future state of Social Security, Medicare, and Medicaid is not terribly encouraging it is still very important to apply for Social Security benefits when you are eligible. I don't suggest that you solely rely on Social Security & Medicare as your "retirement plan", but that doesn't mean you still can't apply for and receive benefits from these programs, they just might not be exactly what you had thought they were going to be.
►►► If you find the whole process overwhelming then I suggest looking at vendors like GovSimplified and 65 Incorporated. GovSimplified is a convenient service to sign up for social security benefits or replace and update your social security card & information. They charge a one time fee of $37 for their service, but it is from the comfort of your own home thus avoiding the long lines at the social security office. 65 Incorporated is a service of Medicare experts (I know them personally, they know more about Medicare then anyone else I know) to help you figure out the complex Medicare landscape and what makes the most sense for your situation.
Another resource you may want to look at, it costs $14.95 for a years access, is The Social Security Retirement Guide. From Jim Blair, former Social Security Administrator, this guide goes into detail on how to best maximize your retirement benefits from Social Security. Given how complex the system is and that the rules seems to be in a constant state of change, this guide may be a good resource.
How do I plan for my own retirement?
Well, it depends on your age. If you are currently drawing Social Security income, or plan on starting in the next 5 years, then chances are pretty good you have nothing to worry about, at least as far as SSA income is concerned. If you are like the many millions who are 1, 2, 3 or more decades away from being eligible to collect Social Security benefits, then you need to start planning now.
Although each person’s financial situation is different, I tend to recommend that my younger clients, me being one of them, not plan on receiving anything from the Social Security Administration or Medicare. This is planning for the worst and hoping for the best. If we plan this way, then chances are we should be OK in retirement regardless of what government benefits we may or may not receive.
I would encourage you to think about what your hopes, dreams & goals are and then take a hard look at your current financial situation. Then consider meeting with an advisor to help you evaluate and analyze where you are, being the basis for planning for the future.
A great free tool we offer is a Finance Guide. It is a simple and easy tool to help you figure out where you are today, where you want to be in the future, and how it may relate to your Social Security Benefits. Bring this to your first meeting with your advisor when starting the planning process.
Regardless of your age, planning for the future is, in my opinion, a key to realizing your hopes, dreams & goals while also planning for the unexpected, or in the case with Social Security, the writing on the wall.