While Social Security is an amazing benefit for retirees, many misconceptions can lead to some big, unwanted surprises when you actually enter retirement age and become eligible for the program.
Sometimes a reality check can end up saving you a lot of grief, so lets take a look at some of the facts about Social Security, and what they could mean for your future retirement plans.
How Much Income Social Security Will Replace
Arguably the biggest thing to know about Social Security is that it isn’t designed to replace all of your income as you retire. In fact, the program is only supposed to replace 40% of your preretirement income.
The average monthly check was $1,500 in January, according to the Social Security Administration. Do you think that’s enough to pay for all your living expenses?
According to a 2019 Nationwide Retirement Institute survey, 26% of those polled believed they could live comfortably on Social Security alone. Another 44% said they would rely on Social Security to be a main source of income.
“The misconceptions about Social Security are alarming,” Nationwide’s President of Sales and Distribution Tina Ambrozy said in an interview with USA Today. “If you think about how many are relying on Social Security to be their main source of income, it really is scary.”
While it may be possible to live on Social Security alone in retirement, it may be a good idea to use the SSA’s retirement estimator tool to find out how much you can actually expect to get, and compare it to what you currently spend on monthly expenses. Keep in mind this is only an estimate, and you may receive more or less depending on when you file.
Benefits May Be Cut in the Future
Social Security receives consistent funding from payroll taxes, but by 2035 the program is projected to become insolvent. While that doesn’t mean the program is going away, it does mean payments to beneficiaries could be trimmed by anywhere from 20-25%.
Of course, Congress should hopefully find a fix by then, but progress for any kind of funding fix has come at a snail’s pace as other issues take precedent and lawmakers kick the proverbial can down the road. We’ll just have to wait and see, but just know that funding for Social Security is an issue and it will likely continue to be an issue as more and more people enter retirement.
Social Security Is Losing Buying Power
Social Security receives a cost of living adjustment (COLA) every year. These adjustments are meant to help retirees keep up with rising costs of everyday expenses like health care, which is climbing at a more rapid pace every year.
The problem is that these COLAs aren’t keeping up with costs. This year’s COLA was only 1.6% after 2019’s 2.8% raise. While these seem like decent numbers, there were also multiple years in the last decade that saw no COLA increase at all.
The Senior Citizens League did a study last year that found Social Security benefits have lost 33% of their buying power since 2000. Consider this: Medicare Part B premiums rose 7% this year, which could wipe out a good chunk of the COLA right off the bat.
Social Security is a linchpin of retirement but that doesn’t mean it’s perfect, and you should do what you can to figure out how much the program will do for you.
• You can find all of the latest and most important news about Social Security here on Money and Markets.
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