Don’t Count on Social Security: Here’s Why

When I speak at events across the country, people ask me all sorts of questions about retirement planning. And one subject seems to trip them up a lot—Social Security. People just don’t know how it works. Or when to apply. Or how much to plan on.

That lack of knowledge is all too common. In fact, nearly 70% of people who took a 10-question quiz on Social Security failed the quiz. And of the 1,500-plus respondents, only one woman got a perfect score!(1)

Folks, we have a problem. When people don’t know the facts about Social Security, they can make poor decisions about funding their retirement. And that’s not okay!

I understand how confusing government programs can be. The legal jargon alone can give you a migraine. But you need to know this stuff to make smart decisions for your future, so let’s take a look at the basics of Social Security. This is important, so pay attention!

How Does Social Security Work?

You and I give a percentage of every paycheck to the Social Security program. Ever notice that line on your pay stub that says “FICA”? That stands for Federal Insurance Contributions Act. This tax includes contributions to both Social Security and Medicare. Your employer may list “OASDI” (Old Age Survivor and Disability Insurance)—that’s Social Security. Or Medicare may be shown as “Fed Med/EE.” In every paycheck, 6.2% of your gross income goes to Social Security and at least 1.45% goes to Medicare.(2)

For 2020, you get a credit for every $1,410 you earn—up to a maximum of four credits a year. You need 40 credits to receive Social Security benefits when you retire. If you make at least $5,640 this year, you’ll earn all four credits. And if you continue getting all four credits for 10 years, you will be eligible to receive Social Security benefits. (3)

Even though you’ll likely earn those 40 credits pretty early in your career, you don’t get to start taking out Social Security payments until you reach a certain age. You can start taking out a reduced benefit (70% of your full benefit) at age 62. If you were born in 1960 or later, full retirement age is 67. If you were born before that year, full retirement age decreases slightly by month and year of birth.

Now, you can choose to delay receiving your benefits—and you’ll be rewarded for it. If you wait until age 70 to start receiving Social Security, you’ll receive between 124% and 132% of the full benefit, depending on your age.(4) That’s free money! So, if you’re in good health, delaying retirement a few years might be a great option for you.

What’s the Typical Monthly Benefit?

According to the Social Security Administration, the estimated average monthly benefit for retired workers will be $1,503.(5) That’s just over $17,500 a year. To put it in perspective, the poverty guideline for a one-person household in 2019 was $12,490.(6) You won’t be jetting off to Paris, France, on that kind of income. Maybe Paris, Texas.

Like many other government calculations, figuring out your expected monthly benefit is complicated. It’s based on how much you make throughout your career. Your earnings for the highest 35 years are averaged out, and then a benefit formula is applied. The end result is your monthly benefit from Social Security.

The good news is that each year the Social Security Administration will send you a letter that shows what your expected monthly benefit will be when you retire. If you’re young, it’ll be inaccurate because your salary will likely increase. If you’re getting close to retirement age, you can use that estimate to plug into your planning.

What’s the Current State of Social Security?

Uncle Sam has been giving away more Social Security money than he is taking in. Some projections estimate that Social Security will be insolvent (a fancy word for "run out") by 2035.(7) The future of Social Security isn’t looking so good. If Congress doesn’t plug the leak, benefits could drop to around 79% of the current amounts.(8) And by the time that decade rolls around, who knows? It’s all up in the air—which is not a good place to be when you want to retire.

Because today’s workforce (anyone who’s currently working) is still paying FICA, Social Security won’t suddenly collapse. As long as FICA exists and money is coming in, qualified retirees will continue to receive Social Security benefits. There will likely be some money for you when you retire. The real question is: How much money will you actually get by then?

At this point, nobody knows. Simply put, if you’re counting on Social Security to pay for all your needs and wants in retirement, your future is in the hands of the people in Washington, D.C. Scary, I know.

How Much of My Retirement Will Social Security Cover? 

Unfortunately, a lot of people still believe they can live off Social Security when they retire. And believing that myth could be costly. A recent survey found that the majority of people over age 50 think Social Security will cover 50% or more of their expenses in retirement.(9) But Social Security is designed to replace only 40% of the average worker’s pre-retirement income. And most financial advisors say retirees will need 70% or more of pre-retirement earnings to live comfortably.(10) Are you seeing the problem? I hope so!

How Should I Use Social Security Benefits?

You need to think of Social Security as the icing on the cake rather than the cake itself. It would be a nice bonus, but don’t count on it. You need a better, more reliable plan—one that depends on your hard work and dedication, not the decisions made by a bunch of politicians.

If you haven’t started saving for retirement, now’s the time. If you’re out of debt and have an emergency fund in place, you need to be investing 15% of your gross income for retirement. Your company 401(k) program (or something like it) is a great place to start.

Another thing you need to do is talk with a financial advisor. These folks will help you create a plan to reach your wealth-building goals. If you don’t have a financial advisor, you can check out our SmartVestor service. It’ll give you a list of advisors in your area who follow the same solid financial principles as I do.


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Mama Hogan used to say, If it is to be, then it’s up to me. Your retirement is in your hands, so don’t let your future slip through your fingers. Get to work!

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