3 It's hard to believe the facts about social security

Social security plays a key role in almost every US workers' pension plan, but it is remarkably misunderstood for something so universal. Some people believe that their benefits will be enough to cover all their retirement expenses, while others think the program will not help them. Neither is correct.

Here are some highlights on Social Security to clear things up so you can understand how it fits into your retirement plan. At least one of these will probably surprise you.

1. Social security was supposed to cover only 40% of pre-retirement income of average employees

Current retirees and seniors approaching retirement tend to rely heavily on social security, with many claiming that they intend to use it as their primary source of income. retirement income. But the program has never been designed to achieve this goal. According to the Social Security Administration, it was to cover only 40% of pre-retirement income for "average workers", although it does not give a definition of the average wage. Low-income households may find that it covers more than 40% of their costs, while high-income households may find less.

In July 2019, the average amount of social security benefits was $ 1,472 per month for retired workers. That's $ 17,664 a year. The Bureau of Labor Statistics estimates that the average household headed by an adult aged 65 and over spends just under $ 50,000 a year. On the basis of these data, typical social security control will only cover about 35% of the average household expenditure of retirees. If two adults claim social security in the household, this percentage could be higher.

2. Social security will not go bankrupt

While older people are often guilty of over-reliance on social security, many young adults fear that social security will no longer be there for them, as the resulting trust funds should be exhausted by 2035. is true, but it does not happen. does not mean what most people think it means. Even if the government did not make any changes to social security, it would still be able to pay 80% of the benefits expected between 2035 and at least 2090.

Social security can never truly go bankrupt unless the government decides to abolish the social security tax on workers and the tax on social security benefits on high-income beneficiaries. These taxes generate new revenues each year for the program. The problem is that there are more elderly retirees who claim benefits and fewer younger workers who contribute to the program, so taxes do not provide enough income to cover all benefits. provided.

Government officials have already proposed solutions to reform the program so that it is available for future generations. We do not yet know what these changes will look like, but possible options include:

• Social security tax rate increase (currently 12.4% split equally between employee and employer)
• Raise the age of retirement (66 or 67 for current workers)
• Increase in the income ceiling subject to social security ($ 132,900 in 2019)
• Reduce profits
• Reduce cost-of-living adjustments that help social security keep pace with inflation

On the basis of these proposals, it is likely that social security benefits will not be as extensive as they are today, but they will still be there for you, your children and their children.

3. Legislators do not make any descent into social security trust funds

Some people mistakenly believe that social security funds can run out in part because legislators rob them of funds when they need money for other state expenditures. It's a distortion of the truth.

The fact is that the SSA invests the remaining money after the payment of benefits and the coverage of its administrative costs in US Treasury securities. Legislators can use this money to cover other government expenses, but they must pay it back with interest, so that they do not take the money that would have been spent on deserving retirees, to the disabled or their families. And that money ends up back in trust funds.

Now that we have clarified some of the truths from the myths, you have realistic expectations of your social security benefits. They will be there for you, whether you plan to retire tomorrow or in 30 years, but they will not be enough to support you alone. You need to prioritize your personal retirement savings and create a personalized retirement plan if you do not already have one. Your own savings should be your main source of income in retirement. Social security is only meant to be a complement.