The word “guarantee” comes with a heavy burden. When you make a guarantee, or someone makes one to you, it’s expected. It’s promised. It’s considered a “lock.” Not surprisingly, not many things in life are guaranteed – guarantees are tough to actually follow through on.
For the longest time, some considered Social Security payments as close to a guarantee as you could get. A worker would pay into the system for 30 to 40 years. That same worker would then get a promised monthly benefit (with cost-of-living adjustments) from the government in retirement. End of story.
But as you approach retirement, Simply Money Advisors wants you to rethink the notion of your monthly Social Security benefit being guaranteed no matter what. Because like with many guarantees, the devil is in the details.
Just this week, the Social Security Administration released its annual trustees report, and in the details there’s a brutal truth: this year, the program’s costs will exceed its income. This means, for the first time since 1982, the program will have to dip into its trust fund to cover benefits. While this move was expected, it was not initially supposed to happen until 2021.
Likewise, the report confirms that after 2034 (mind you, just 16 years from now) Social Security will only be able to pay about ¾ of promised benefits to retirees if no changes are made to the program. So, for example, if you’re expecting to get $1,200 a month, it would be something closer to $925 a month.
Therefore, as you think about retirement, you cannot be planning to rely solely on Social Security. You need to be saving and investing on your own. Ideally, Social Security should just be one of many retirement income streams at your disposal. That way, if you don’t get your full promised benefit, your retirement lifestyle and budget won’t be impacted too severely. If you do get your full promised benefit, it’s like icing on the cake.
The Simply Money Point
The good news is that Social Security can never truly disappear or “go broke” – as long as there are workers paying into the system, you’ll get something.
But always remember there’s a chance that the “guaranteed” benefit you’re banking on for retirement could be less than what you’re expecting. For the program to function properly, Congress needs to step up and make some necessary (and potentially difficult) changes before 2034.
And there’s definitely no guarantee of that.
Want to educate yourself more about Social Security and retirement planning? You’ll find free downloadable guides and online tutorials in our new “Retirement Resources” library!