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Social Security isn’t Going Away. But Big Changes are Coming

Many consumers have begun to assume that Social Security won’t be around by the time they need to tap into it. That’s simply not true. Yet it’s increasingly clear that Social Security will represent a smaller source of your retirement income than you may have once assumed.

Although the nearly $3 trillion Social Security Trust Fund is now operating at a deficit (as retirees collect more than non-retirees contribute), it is projected to have enough cash on hand to pay 100% of the benefits due to retirees through 2034. If nothing has changed by then, benefits will be likely be around 77% of current levels (adjusted for inflation).

For married couples, that carries a pretty clear implication. Wait as long as you can to collect Social Security benefits. Here’s why.

In most instances, a lower-earning spouse is entitled an amount equal to half of their spouse’s benefits. Once the higher-earnings spouse dies, the survivor is entitled to 100% of the deceased person’s benefit. If the higher earner can wait until 70, then the widow (or widower) will glean the highest potential level of Social Security payments. That’s a key consideration in an era when surviving spouses are living into their 90’s.

So it pays to maximize the higher earner’s benefit, which usually means he or she should wait as long as possible, up to age 70, before starting to collect benefits.

Of course, the decision of when to collect Social Security isn’t a one-size-fits-all choice. Some people need to start collecting it at FRA (full retirement age) of 67, or even a few years earlier, if cash is tight.

And anyone with an extensive history of health problems in their family also needs to have frank discussions about likely lifetime longevity. A trusted advisor, such as a fee-only financial planner, can help assess the ideal time to start collecting Social Security and other retirement income streams.

Let’s return for a moment to that 77% figure noted above. Don’t look for the government to simply cut Social Security benefits by 23% in 2034. That would be too great a shock to the system. Instead, the government is likely to do what it has already been doing in recent years: responding too slowly to the impacts of inflation. By messing around with inflation assumptions, Social Security benefits grow more slowly than our actual costs of living.

That’s already starting to out the squeeze on some retirees and will feel even more pronounced in years to come. So Social Security isn’t going away. But it is growing more stingy.