The Social Security program was created as a way to assist seniors with a monthly source of income after retirement, and it is administered by the Social Security Administration. There were many contributing factors to the need for such a program, including improvements in medical care that extended life expectancies and the introduction of automobiles that led to families becoming more spread out across the country instead of staying at home to care for aging parents and grandparents. Social Security benefits have continued to be a a significant source of retirement since its inception.
Will Social Security Run Out?
The question of whether Social Security will run out is a bit tricky to answer. The reason for this is that the funding for Social Security relies on a number of things, including contributions from current and future workers. Much like funding for Medicare coverage, the Social Security program is funded by people who are currently in the job market. These workers contribute a portion of their income to the Social Security program in the form of a tax, and these contributions go toward payments to individuals who are receiving Social Security benefits. Unlike Medicare coverage, there is no premium to pay in order to receive benefits, but there are work history requirements.
Unfortunately, if the economy sees a major downward movement and the job market shrinks, then fewer people will be contributing. Population size and age restrictions for Social Security eligibility also play a role. If the United States experiences smaller population growth while life expectancy continues to rise, the number of people receiving Social Security could surpass the number of people in the workforce, thereby leading to a shortage in funding.
What Can Be Done?
Current figures suggest that Social Security will reach this tipping point in 2020 when recipients of Social Security will outnumber workers paying into the system. In order to keep the program financially sound, taxes may need to be increased, but another solution that has been posited is to allow workers to roll a portion of traditional savings vehicles, like 401(k) accounts, into Social Security. Even if these measures are put in place, it is likely that future beneficiaries will see a decline in payment amounts.
Changes may also be coming that increase the age at which retirees can apply for benefits. Currently, you can begin receiving full Social Security benefits at the age of 66, but by 2026, this age restriction will rise to 67. By raising the age limit, the Social Security Administration buys more time to collect funds from current workers. It is possible that additional years will be added to the retirement timeline in the future.
Because of the financial problems faced by the Social Security program and its recipients, it would be wise to work with a consultant who specializes in financial planning. While it’s recommended to do this long before retiring, workers of any age can still benefit from planning ahead to understand what level of income will be necessary to comfortably retire.
If you seek out the services of a financial planner, try to look for one who is a certified fiduciary. This distinction means that the planning professional is required to act in your best financial interest rather than his or her own. Instead of selling a particular financial product or service, a fiduciary is required to evaluate your unique financial needs and investments in order to create a plan that helps you keep more of your money while growing your investments without concern for profit potential on the part of the planning professional or his or her company or employer.
You can also speak with your own employer to inquire about available retirement plan options, including 401(k) investment opportunities, profit sharing programs and other ways to use your current income and earning potential to leverage returns in the future.