Survey finds US dependency rate on social security almost record – Motley's fool

Next August, we will be celebrating the 84th anniversary of social security since it was adopted by Franklin Roosevelt. During its almost 84 years of existence, of which over 79 included payments to retired workers, it has kept countless older workers, disabled workers and survivors of workers dead over the federal poverty line.

But as impressive as social security as a program, one of the things it was never intended to become was the main source of income.

Chances are you rely too much on social security

According to the Social Security Administration, average workers should see about 40% of their salary during retirement replaced by a social security benefit, with perhaps a slightly higher percentage for low-income workers and a lower percentage for low-income workers. more affluent. make. This suggests that, if social security is there to help the elderly, they should have other sources of income, such as retirement accounts or pensions, that take their social security benefits.

Yet, according to a poll published annually by national pollster Gallup, the Americans' confidence in the program remains undeniably high – which, as you will see, is not a good thing.

The latest Gallup survey, which was conducted in early April, asked current and retired retirees how much they currently depend on or hope to be able to count on social security income. Among current retirees, 57% consider it a "major source" of income, with 33% noting that it is a "minor source". At the same time, 33% of non-retirees expect social security to be a "major source" of income, while 50% claim it will be a "minor source".

One way to visualize this data is to look at it in the context of "respondents who need their social security income to make ends meet" as opposed to "respondents who do not consider Social Security as a source of necessary income ". According to the Gallup poll, 90% of current retirees and 83% of non-retirees will benefit on the one hand from Social Security during their retirement. For current retirees, this 90% dependency is a 17-year high and is identical to last year. With regard to non – retirees, their dependence on social security is only one percentage point below a 16 – year high and down from 1 point compared to 2018.

Big problems are around the corner

Since social security has existed for more than eight decades and is almost incapable of going bankrupt, this heavy dependence on the program may not seem like a big deal. But make no mistake: major changes in the program seem about to happen and an over reliance on Social Security could come back to haunt seniors fairly quickly.

Each year, the Social Security Administration Board publishes a report on the short-term (10 years) and long-term (75 years) prospects of the program. In the latest report, released in April, administrators announced the start of annual Social Security cash outflows by Social Security in 2020, with these outflows increasing every year. By 2035, the $ 1.9 trillion in surpluses accumulated by the program since its inception will have completely disappeared.

Understand that there is a big difference between not having asset reserves and not having income. Social security will still generate a lot of revenue every year thanks to its 12.4% wage tax on labor income, as well as the taxation of social security benefits. This ensures that social security can never go bankrupt or simply disappear.

But the absence of excess capital in the program would mean that widespread reductions in benefits are needed to keep the program solvent for a long time. The directors have anticipated the need for a reduction of up to 23% of retiree benefits by 2035 if no additional revenue is generated by Congress, nor if the expenses are reduced.

In May, the average retired worker reported almost $ 1,470 a month. But a 23% haircut of this average gain would dangerously reduce it from the federal poverty line, in 2019 dollars.

Know your options

The fact is that Americans can not rely on Congress to bail them out. This means that the burden of a healthy retirement rests on all of us. Fortunately, there are steps to be taken to improve our financial situation.

The easiest way to reduce your social security dependence is to take advantage of the retirement and investment tools available to you. This can include a 401 (k) plan from your employer – especially useful if there is a business-to-business matching option – or the creation of an Individual Retirement Account (IRA), which can offer immediate or ultimate tax benefits, According to the case. which method is best suited to your tax situation and current income.

It is also useful to enter retirement with little or no debt and an emergency savings fund sufficient for the difficult times. Having money saved for a rainy day will guarantee that you will not wait on the edge of your seat for the next social security check to be deposited.

But it's equally important to understand your social security claim options. Although there is no perfect claim strategy, there are certainly clues that can help you in your claim decision. By making sure you understand your options (for example, waiting years before receiving benefits, canceling a claim, or maximizing household income through spousal benefits and / or family allowances), you can draw the best of social security. Knowing your options, even a potential haircut of 23% of your earnings should not be devastating.