Today’s question is… “Is Social Security going to run out of money?”
How it Works
The quick answer to that is, it will most likely be there if you’re close to retirement age. Social Security gets its funding through payroll taxation and working people paying into the Social Security system. The system then pays out of benefit to retired people who had previously paid into Social Security. For years, the amount of money getting paid into the system was greater than what was getting paid out; this created a surplus of $2.9 trillion by the end of 2020. However, there are more people drawing on Social Security now than there are paying into it.
Working people and retirees alike are living much longer today than they did when Social Security was first introduced. Before, you had to be 65 years old to trigger your benefit, and now you can trigger at 62 years old, or even earlier if you’re a widow. The full retirement age conversation is important that gets into when you can get your full benefit and not be penalized if you continue to work thereafter.
It is estimated that the surplus will be exhausted by the year 2034. Approximately 78% of the Social Security income getting paid out will be covered by contributions of working people paying in. Where’s the difference going to come from? The likelihood that your Social Security is going to stop if you’ve already started it is, I don’t want to say extremely unlikely, but I don’t think it’s a real concern. The bigger concern is, if you’re planning for retirement or have already retired, you don’t want to rely solely on Social Security for your retirement income. You want to be looking at the other options that you have.
- Do you have a pension?
- Are you going to work?
- What money did you save?
- Are you utilizing your money the right way in regards to how much you’re going to keep?
- What are you going to pay taxes on?
- What are you paying in fees?
- Is your money growing?
- What’s the risk that you’re taking?
There’s certainly a lot that goes into it, but social security and when to trigger it is a big and important decision, particularly if you’re talking about two of you, because when one of you dies, the larger social security benefit amount is going to remain. Take the time to have these conversations before triggering social security so you can be realistic about what you can count on and what you can plan for in retirement.
Thanks for joining me and I hope you found this information helpful!
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