3 Social Security Changes You Probably Didn’t Know About

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man standing in the mud: 3 social security changes you probably didn't know about

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3 Social Security Changes You Probably Didn’t Know About

Social security has long been considered one of the pillars of a secure retirement. In addition to a healthy retirement income and nest egg, the program can be expected to cover at least some of your retirement costs. However, recent changes to Social Security have made the proposal a little more tenuous. Future retirees will need to maximize each of these three sources of retirement income to ensure they are covered throughout their golden years.

Here, we’ll take a look at three changes to Social Security that you probably didn’t know about.

1. Its confidence reserves have a shorter lifespan

In the latest update from the Social Security Administration, the outlook for its combined trust fund has reportedly deteriorated since 2020. The combined fund is made up of two separate trusts: the OASI Trust Fund (for old age and survivors insurance ) and the DI Trust Fund (for invalidity insurance).

To be clear, SSA is currently operating on a year-over-year deficit and relies on its reserve funds to cover the gap in benefit payments to claimants. If the deficit grows, which it does, the reserve funds will be depleted more quickly.

Based on current projections, which have not yet fully taken into account the long-term effects of the pandemic and its impacts on employment, the Combined Trust Fund could support payment of full benefits until ‘in 2034. This is one year earlier than the predicted exhaustion date found. in the SSA 2020 update.

This means that while you may be able to rely on Social Security for some contribution in your retirement, the final amount is far from certain. According to the full text of the 2021 update, once the reserve funds were depleted, there would only be cash flow to provide 78% of the planned benefits.

At the very least, an increasingly uncertain Social Security benefit can serve as a motivation to do all in your power to ensure a comfortable retirement. There has never been a better time to take advantage of a Roth IRA or your employer’s 401 (k) matching contribution.

a man standing in the earth: woman helping an elderly man.

2. The 2021 cost-of-living adjustment loses to inflation

Video: Here’s what could happen to your benefits if Social Security runs out of money (CNBC)

Here’s what could happen to your benefits if Social Security runs out of money

FOLLOWING

Social Security benefits in 2021 are 1.3% higher than in 2020 to take into account the increase in the cost of living. While we have seen inflation recede in the summer of 2021, to 5.4% from the previous year, it is clear that the increase in benefits payable does not really explain the true increase in cost. of life.

Higher costs for energy, gasoline and food have pushed daily living expenses much higher than initially expected. Without much more analysis, it’s easy to see that this has a particularly negative effect on those living on fixed incomes, especially retirees and other retirees.

This puts people in a difficult position: they could take riskier positions in their equity portfolios in an attempt to fight inflation, or settle for negative long-term bond fund returns. These risks, coupled with a Social Security payment that doesn’t go as far as it once did, can make the retirement puzzle more difficult.

But all is not lost. According to the League of non-partisan seniors, social security benefits could increase by 6.1% in 2022; that would be enough to fight current levels of inflation, which would at least help retirees keep pace with what appear to be endless price increases.

Interestingly, a 6.1% price increase would be the highest since 1983, when benefits increased 7.4% year over year.

3. The full retirement age continues to rise

Although you can apply for Social Security benefits at age 62 and purchase Medicare coverage at age 65, the age at which you are entitled full benefits keep increasing. For those who turned 62 in 2020, the full retirement age was 66 years and 8 months, and for those who turned 62 in 2021, the FRA is 66 years and 10 months. Anyone born in 1960 or later will have an FRA of at least 67.

As previously described, Social Security’s financial solvency is not per se at risk, but it faces serious challenges under current law. Future legislative changes might seek to push the FRA even higher, such as 70 or 72, to improve the program’s ability to pay benefits.

One of the main problems with the increase in ARF is that life expectancy is not increasing as it once was in this country. Problems like obesity, drug and alcohol addiction and the ongoing pandemic have contributed to a decline of life expectancy, and many of our other problems, such as climate change and government mistrust, persist.

Social security will stay

There are undoubtedly a number of challenges and political debates surrounding Social Security and its continued ability to provide for the needs of retired seniors. Since we at least know the apparent issues, we can use this information to save a bit more, build diversified portfolios, and reset our expectations for the long-term future of the program.

You will almost certainly receive your benefits on time, but it is your level of preparedness, whatever happens in the future, that will dictate your retirement security.