Strong or Vulnerable? Social Security in its 80th Year

For 80 years, Social Security has been protecting American families from both expected and unexpected challenges. Last week, the Social Security Board of Trustees released its annual report to Congress, which projects that Social Security’s condition isn’t as troubling as many think.

The 2015 report presents an honest, open discussion about the value of Social Security and its importance to millions of retired workers, spouses, children, veterans, and persons with disabilities. As you will gather from the report, despite its flaws and funding issues, Social Security is likely here to stay.

Below are some of the highlights:

  • Future Viability of Social Security for retirees: For the Old Age and Survivors side of Social Security, which is what funds benefits for retirees and their families, the trustees expect that the program will be able to pay full benefits until 2035, which is a year later than it expected in last year’s report. After that date, the report says that tax revenue from payroll taxes and other sources will provide enough funds to cover $0.79 of every dollar of benefits due under the law. These projections assume that no legislative changes to Social Security get made.
  • Disability Insurance portion of Social Security in trouble: The large number of baby boomers who haven’t yet hit retirement age, but who have become disabled have left the Disability Trust Fund in poor financial shape. Although making the transition to retirement benefits could ease the Disability Trust Fund’s burden, it’s likely too late to avoid a problem without more dramatic action. Proposals to make transfers from the Old Age and Survivors Trust Fund would meet the immediate need, but it would also move up the date on which the total program’s money runs out to 2034.
  • Lawmakers must raise new revenues: In order to close Social Security’s overall long-term financing gap and ensure 100% of benefits could be paid well into the future, lawmakers must raise new revenues for Social Security, consider program cuts, or a combination of those two options. Simple adjustments to the program’s financing have received support among Americans and could put the program on sound footing. Examples include raising the payroll tax gradually (currently 6.2% each for the employee and employer), or requiring higher income Americans to contribute more by subjecting more earnings to the payroll tax (currently only the first $118,500 in wages is taxed for Social Security).

Many people who read about Social Security’s future funding shortfall think that it means the end of Social Security. This misconception can cause people nearing retirement to make a huge mistake by claiming Social Security benefits early under the belief that Social Security will run out of money if they wait to collect benefits. The funding shortfall should not be ignored; however it is still critical to make careful claiming decisions and consider the benefits of deferring benefits until full retirement age or until age 70.

Reasons to Defer Your Social Security Benefits

If you collect Social Security benefits at age 62 (the earliest you can do so), you’ll pay a penalty of 25% or more in your monthly benefits by filing before full retirement age. That is why, if you’re working, in good health, and can afford to do so, experts generally suggest you wait at least until full retirement age. The chart and considerations below explain why:

Typical Social Security Monthly Retirement Payments

Recent average annual incomeBegin benefits at 62 (early retirement age)Begin benefits at 66 (full retirement age)Begin benefits at 70 (delayed retirement age)

Considerations (why you should defer collecting Social Security, if you can):

  • Extra years of bigger checks: Payments continue as long as you’re alive, so those extra years of bigger monthly checks can matter a lot.
  • Boosting benefits by working longer: The later years of our careers are often some of the best-paying, helping to boost benefits even more down the road. Every year you pay into Social Security increases the size of your monthly check once you start collecting.
  • No penalties for working once you reach FRA: You no longer face a penalty for working once you hit FRA. You can work as much as you want and still receive your full benefits. (However, depending on how much you make, you may have to pay federal taxes on part of your benefits. IRS Publication 915 provides more information.)
  • Survivors benefits based on your earnings: If you die before your spouse, he or she can often collect a survivor’s benefit based on your earnings. But if you elect to take early benefits, your spouse will receive a reduced check after you’re gone.
  • If you need the money earlier, the option is available: If you’re unemployed and out of savings, or if you’re only working part-time and finding it impossible to make ends meet, then none of the above is as important as your immediate need, and you should consider taking benefits as soon as you can.
  • If you’re uncertain where you stand, start with a careful inventory of the living costs you’ll have when retired, along with an estimate of your income from other sources. Make sure essentials are covered first, then look at the things you’d really like to do and see how they fit into the budget. You’ll have a much better sense of when you want to turn to Social Security.

For lots of additional details about Social Security, including spousal benefits, please visit our Social Security FAQ page.

What if you are living on social security alone and you or a loved one becomes incapacitated? You must take this into account when planning for retirement.  Every adult over the age of 18 should have an Incapacity Plan that includes a Financial Power of Attorney, an Advance Medical Directive, and an Advance Care Plan. If you don’t have an Incapacity Plan in place, now is the time to get started.  Please call Farr Law Firm, P.C. as soon as possible to make an appointment for a consultation:

Fairfax Social Security Law: 703-691-1888
Fredericksburg Social Security Law: 540-479-1435
Rockville Social Security Law: 301-519-8041
DC Social Security Law: 202-587-2797

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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.