On January 31, 1940, the first monthly Social Security check was issued to Ida May Fuller of Ludlow, Vermont. She received $22.54. Before passing away in 1975, she collected $22,888.92 in Social Security benefits. Interesting trivia aside, many younger folks have little faith that Social Security will be there for them when they retire. According to Northwestern Mutual’s 2020 Planning and Progress Study, nearly 75% of Gen Z (born after 1996) believe it’s somewhat likely or not likely at all that they will receive benefits.
Recently you may have heard on the news that Social Security, the program that began nearly 100 years ago, is heading toward insolvency. However, that does not mean monthly checks will disappear. If Congress does nothing, the Social Security trust fund for retirees will run out of funds.
It is true that the Social Security trust funds, where the money raised by Social Security taxes is invested in non-marketable securities, is projected to run out of funds by around 2034. Social Security taxes will still raise money each month, though. Projections show that even if nothing changes, the trust fund will cover around 79% of its obligations through 2090. While that is a funding issue to address, it doesn’t mean that the program will go bankrupt.
We can’t control how Congress addresses a funding shortfall. We advise you to control what you can control, and preparing for retirement is of paramount importance. Social Security wasn’t designed to replace all of your income, but coupled with retirement savings, it will provide you with additional support. Besides, you’ve paid into the program your entire working life. When the appropriate time comes to receive benefits, you deserve your monthly check.
Types of Social Security
- Retirement benefits: These are the benefits most of us are familiar with. The earliest you may receive a monthly payment is age 62. The full retirement age is between 66 and 67 depending on when you were born. Non-working spouses may qualify for a portion of the working spouse's benefit depending on their age.
So, when should you draw your benefit? There’s no hard and fast rule, however, reductions or increases to your benefit are based on your normal retirement age which is your benchmark. The amount of your benefit will last for the rest of your life and increases with annual cost-of-living adjustments based on the rate of inflation.
Simple math tells us that someone who receives a 5% cost-of-living adjustment on a $1,500 per month payment will receive a smaller increase than someone with a $2,000 payment. Those annual increases (assuming inflation is above zero) compound for a lifetime. If you are married, you have other items to consider. At full retirement age, you can take either 100% of your own retirement benefits or 50% of your spouse's, whichever is higher. If you are divorced and you were married for 10 years or more, you can receive benefits based on your ex-spouse's Social Security record (up to 50% of their full retirement benefits). This won’t affect your current spouse’s benefit if you have re-married. If you're widowed, you can receive either your own retirement benefit or up to 100% of your spouse's benefits, whichever is higher.
These are guidelines and are designed to provide you with a broad understanding of Social Security basics. We are happy to work with you and refine your approach.
A brief mention of other benefits
- Disability Benefits: If you meet the requirement, usually work experience between five and ten years, Social Security Disability may be available to you if you have a severe medical impairment (physical or mental) that’s expected to prevent you from doing "substantial" work for a year or more, or have a condition that is expected to result in death. Certain childhood disabilities may also qualify for benefits whether or not the individual has been able to work.
- Family Benefits:Certain benefits may be available for spouses and children of disabled workers. When you start receiving disability benefits, certain members of your family may qualify for benefits based on your work, including your spouse, divorced spouse, children, and/or adult child disabled before age 22.
- Survivor Benefits: If you are the surviving spouse of a worker who qualified for Social Security retirement or disability benefits, you and your minor or disabled children can be entitled to survivor benefits based on your deceased spouse's earnings record. As a widow or widower, you may begin to collect benefits once you reach age 60, or age 50 if you have a disability that prevents you from working. Children qualify if they are unmarried and under age 18, under 19 but still in school, or 18 or older but they were disabled before age 22.
Final thoughts
It’s important to check on your earnings history. It’s easy to do. You can verify your earnings history, its accuracy and much more through a personal My Social Security Account: https://www.ssa.gov/myaccount/ And it’s simple to set up.
Do you have any questions? We understand that Social Security may be complicated. There are various paths you can take to maximize your benefits, and we are here to guide you through the maze.
We trust you’ve found this review to be educational and helpful. If you have any questions or would like to discuss any matters, please feel free to give our office a call.
As always, we are honored and humbled that you have given us the opportunity to serve as your financial team.