There are a lot of myths that go around about Social Security: Social Security is going bankrupt, take it now or you won’t get it, or that the government has been spending it on other things.
There is a report that the Social Security Administration publishes every year that gives the facts. We’re going to go over what is in that report and what it means for you.
What the 2020 Social Security Trustees Report Says
Every April, the Trustees of the Social Security trust fund put out a report on the current and projected status of Social Security. It is a pretty long and intensive document, but there are important points within it.
- The Social Security trust fund has almost $3 trillion in assets.
A lot of times we hear that Social Security has no money left or that it is being used for some other purpose. This report states that the trust fund indeed has money left. Social Security assets are also not allowed to be used for any other purpose but Social Security payments.
- The total annual cost of Social Security is projected to exceed its income in 2021.
The Social Security trustees are predicting that in 2021 the payments out of Social Security will be greater than the money it is bringing in. The last time this happened was in 1982. It is important to note that the 2019 Trustees report assumed that this would happen in 2020, but it did not.
- Social Security will be depleted in 2035 if everything stays the same.
The Trustees calculate that if everything stays the same as it is in 2020, Social Security will completely run out of money in 2035. This is the same projection as the 2019 report. In 2035, it is projected that there will be enough income coming in to pay 79% of benefits.
While this can all seem alarming, if we really break it down, it is not that scary.
As the last point states, Social Security will be depleted by 2035 if everything stays the same. It is extremely unlikely that congress will not change anything to keep Social Security solvent. Social Security is an extremely popular benefit that provides necessary income to our citizens
There are steps that could be taken to solve to keep Social Security going:
- Congress could increase payroll taxes. They have done this in the past and it would easily and significantly increase the amount of money that the Social Security trust fund has coming in. If Congress increased or eliminated the Social Security maximum taxable earnings ($137,700 in 2020), the increased contributions could help shore up the program.
- Congress could increase the full retirement age. Currently, for those born in 1960 and later, the full retirement age is 67. This was increased, slowly and in phases, from 65 in 1983. It would not be unexpected if congress increases the age to 68, 69, or even 70. It is very unlikely that any increase made to full retirement age would affect anyone retiring in the next 10-15 years.
- Congress could decide to start means testing for benefits. This means they would put some type of limit on high income earners. That could be in the form of a reduced check or even no check at all. While this has not happened in the past, it has been discussed. There are already lesser-known means tests for high income taxpayers like Medicare’s Income-Related Monthly Adjustment Amount, or IRMAA.
- Congress could further increase the taxes that have to be paid on Social Security benefits. Currently, Social Security beneficiaries with combined incomes less than $25,000 (for single taxpayers) or $32,000 (for joint taxpayers) pay no tax on their Social Security income.. Beneficiaries with income (from working or investments) over those limits do pay taxes on their benefit, but not on more than 85% of their benefit. We could see an increase in the tax brackets or a change to the combined income calculation, not only effecting high income earners but everyday people as well.
These are all just guesses at changes Congress could make to keep Social Security going. They could take all of these steps, a few of them, or even none. We have no way to know.
Acts of Congress take time ,so we can expect, but not guarantee, that changes will not be made quickly or without ongoing discussion.If you are planning to start your check in the next few years, you do not need to worry about changes to Social Security.
How do I decide when to take my Social Security check?
It is important to not make decisions out of fear, but out of facts. We have laid out some of the facts above, but you can read the entire trustees report to get the whole picture.
Social Security makes up the majority of retirees’ incomes. Getting the timing of the check right could be the difference between collecting or missing out on thousands of dollars in benefit..
When we sit down with clients to look at their Social Security options, we usually start by asking them how they feel about Social Security — the right decision is a personal decision and that means getting an answer that looks and feels right. We run a mathematical Social Security timing report based on their personal Social Security statement. Discussing the feelings and the facts together let us get a good picture of when the right time might be to start your check.
We’ve had clients start their check early because they paid into the system and were scared of never receiving a check. We’ve also had clients delay because they have looked at the timing report and want to make the most money they can. How do you feel? Do you want to get the facts?
At Cardinal, we know it is a personal decision. We are able to lay out all your options and help you make the best choice for you and your family. Contact our advisors and make an informed decision.