Retirement

The Social Security Dilemma

January 6, 2022

How much social security can you expect when you retire? Find out how you can begin to prepare for your future.

a person stands with a jar in their hand full of coins that has label reading "savings"

If you pull up Google and type into the searchbar, “Will there still be” – how do you think Google will fill in the rest? For me at least, the #1 suggestion was, “Will there still be Social Security when I retire?” Yeesh. But this shouldn’t be particularly surprising: it’s a question that looms large for those of us for whom “retirement” is years away (if not decades away). So, what is the answer to this question? And, supposing that the answer we get isn’t the one we want to hear: What are some concrete things we can do to start preparing for the retirement we want?

What does the future of Social Security REALLY look like?

man looking at papers with his head in his hands

According to CNN Money, “The government’s official position is that there is enough money saved to pay benefits at the currently scheduled amounts until 2035.” The Social Security website claims that by 2041, the Trust Funds will be depleted. The reason for this, as stated on their website is, “Because people are living longer and the birth rate is low, the ratio of workers to beneficiaries is falling. Therefore, the taxes that are paid by workers will not be enough to pay the full benefit amounts scheduled.” It goes on to claim that in 2041, there will still be enough for you to receive 78% of your original benefits amount. But it does not provide any detail about what happens after that. Experts say that we shouldn’t be worried about the program disappearing altogether, but they say that the presence of additional taxes and benefit cuts is highly likely. It is important to note that Social Security has been cash-flow negative for over a decade – meaning that it gives out more than it takes in. So what does this mean for the average young American worker? If you plan to retire after the year 2035, you will most likely face a decrease in benefits and, quite possibly, an increase in taxes.

The basics of Social Security

Since they don’t teach classes on this in most high schools, many young people head out into the world completely unaware of how to prepare for their future, apart from a vague “save your money” from their parents or grandparents. So what is Social Security, and how does it work?

When you get a job, taxes are taken out of your paycheck. 6.2% goes into Social Security, along with a matching 6.2% paid by your employer. That money goes into a fund, which then begins paying retirees a portion of what they paid into it. The amount that you receive has to do with the amount you have earned in your lifetime (another reason why it is NEVER a good idea to work “under the table”). You may begin claiming a percentage of Social Security benefits at age 65, but the full amount isn’t available until age 70.

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For example, someone turning 70 this year could expect $2100 a month in benefits if their earnings up until now averaged $60,000 a year. Now, let’s jump to the year 2041 and pretend there are no additional variables to factor in like inflation, the effects of the pandemic, or the depletion of the Social security funds. That same 70 year old would receive only approximately $1630 per month. This figure is based on the information that we have now, and quite frankly, it could be even less than that by the time we get there.

What can we do about it?

a hand putting a coin into a piggy bank

I lay all this out for you to demonstrate one important thing: Social Security is not where your focus should lie when it comes to preparing for your financial future. Instead, think of it as extra funds which may or may not be there when the time comes. There is a fantastic graph from the Social Security website that demonstrates the power of saving in an account that earns 5% interest annually. For a person who saves $25 a week, over the course of 40 years that could grow to be approximately $165,000. If they were to double that and save $50 a week, they would accumulate approximately $325,000.

For some of us who find ourselves living nearly paycheck to paycheck, it can be daunting to imagine finding an extra $50 a week to save. But realistically speaking, there are ways that we can do it. Shop at a cheaper grocery store. Pick items or brands based on sales. Buy in bulk where available. Skip the coffee or the meals out. Cook your own food instead of buying packaged foods. Setting yourself up for future success is more important than you realize in your twenties and thirties. You do not want to work until you are 70 and then open your eyes one day and realize you have very little to show for it. Even if you don’t work at a high paying job, you can prepare for your future. Many companies have wonderful 401(k) matching programs that will help you set money aside in a place where it can’t be touched and can be left to grow over time. If you don’t feel particularly confident with your money managing skills, there are lots of apps that can help you save money. I personally use an app that tracks my balance and purchases and saves automatically based on the calculation of what I can afford to spare every day. It even allows me to save for multiple goals and will send payments from my savings directly to my credit cards if I set it up to do so. There are even apps that can help you get started with investing in the stock market. With a little ingenuity and a little technology, you can prepare for your future in a big way.

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The reality

two silhouettes of people sitting on the edge of the water watching the sunset

So yes, Social Security is probably going to drastically change in our lifetime. And yes, this is disappointing. But the reality is that Social Security checks were never enough to get us by in the first place. We have to be doing more than that to prepare. It’s never too early to come up with a retirement plan. Estimate how much it will cost you monthly to live, pay bills, travel, and do anything else you might have dreamed of doing in retirement. Then figure out how much money you will need to do that and implement those figures into your current budget. Start saving. Start investing. Start paying off your debt. Don’t let the fear of the future keep you from preparing. It will be here before you know it, and small moves today will create massive positive effects on your future life.


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