“Social Security won’t be around when I retire.”
You’ve probably heard that statement before. You might have been the one saying it. In recent years, news outlets have been warning Americans that Social Security is on life support. Lawmakers in D.C. are talking about making changes to bring it back to life. So what does this mean for you? That depends on how old you are.
A Little History
Social Security turned 80 this year, and as a government program, it’s lasted longer than most. Right now, roughly 60 million people get a monthly deposit (it went paperless a while back). In fiscal year 2015, benefits given out topped $877 billion. That may seem like a lot of money, but most people get an average of $1,340 a month. Do the math. That’s just a little over $16,000 a year. You won’t be jetting off to Paris, France, on that kind of income.
Social Security is funded by your paycheck. Ever notice that line on your paystub that says, “FICA”? That stands for Federal Insurance Contributions Act. It’s part of the taxes you pay. In 2015, Uncle Sam collected $786 billion for the Social Security Administration.
And that’s the problem. The SSA took in $786 billion—and gave out $877 billion. Do the math. It’s not good. That gap first occurred in 2010, and as baby boomers retire over the next 10 years, that gap will widen. If nothing changes, the gap would be about 40 percent in 2040. I’m no mathematician, but I know you can’t give out money you don’t have, even if you are the government.
What Will Happen When You Retire?
Because today’s workforce (anyone who’s currently working) is still paying FICA, the Social Security won’t suddenly collapse. As long as FICA exists and money is coming in, Social Security can give benefits to retirees. There will be some money for you when you retire. The question is: How much money will you actually get?
Great question—too bad the answer isn’t so great. If Congress doesn’t agree on a plan to close the gap between what Social Security takes in and what it pays out, the benefits each person receives would be reduced by around 25%—and that’s just an estimate at this point.
If you retire in 2050, your monthly benefit should be around $1,950. If Congress doesn’t fix the problem, that amount will drop to $1,500. Simply put, your future is in the hands of the people in Washington, D.C. if you rely only on Social Security. Scary.
Time to Get Off Your Duff
Here’s the bottom line: you can’t depend on Social Security to take care of you when you retire—and you will retire someday. It’s time to take some serious action to prepare for retirement. That means getting out of debt, getting on a budget, and putting away money every month in a 401(k) or a mutual fund. Even if you retired in 2050 with $2,000 a month from Uncle Sam, that’s only $24,000 a year. That’s not enough!
Your retirement is in your hands. How much you get to enjoy it is completely up to you, so it’s time to get busy! You can have a great retirement if you’re willing to make changes now. You can do it!