Social Security
By Michael Fischer, ThinkAdvisor

The current and future state of Social Security is an increasing concern of both those heading into retirement and younger workers who wonder whether benefits will be available to them when they are ready to follow suit.

A special report in the November AARP Bulletin discusses important facts about Social Security, how it works and its financial health. It also addresses certain misconceptions about the program.

Following are 12 things AARP says every American should know about the program.

1. Social Security is not going bankrupt

“The program really is in good shape right now,” says David Certner, AARP’s legislative policy director. “But we know it has a long-term financial challenge.” For decades, SS collected more money from payroll taxes than it paid out in benefits, the surplus each year being invested in Treasury securities; today, the trust fund reserves are worth about $2.9 trillion.

But as the birth rate has fallen and more boomers retire, the ratio of workers to SS recipients is changing. Absent any change, the program will have to dip into its reserves to pay full benefits after this year, with trust fund reserves forecast to be exhausted in 2034. But even if that happens, SS will not be bankrupt, according to AARP. The program will continue to pay benefits but at a rate of 79% of what recipients expected to receive.

2. Congress probably will not take up Social Security reform anytime soon

Congress is unlikely to make any effort to reform Social Security until there is the possibility of bipartisan support. Whether that will happen in the new Congress remains to be seen following the Democrats’ takeover of the House of Representatives in the midterm elections.

“Because Social Security is so important, we need to be really thoughtful and deliberate about how to make change,” says Kathleen Romig, a SS analyst at the nonpartisan Center on Budget and Policy Priorities. “And we want a bipartisan consensus because we want the change to last.” Some worry that the tax-cut legislation passed in December could lead certain lawmakers to look for places to cut spending.

3. Some ideas to reform funding are starting to take shape

One proposal would either raise or eliminate the wage cap on how much income is subject to the SS payroll tax. In 2019, that cap will be $132,900, which means that any amount a worker earns beyond that is not taxed. Absent that cap, higher-income earners would contribute far more to the system.

4. Lawmakers do not raid the trust fund

A common myth has it that Congress and the president use the SS trust fund assets to pay for other federal expenses. In fact, the money remaining after the Social Security Administration has paid benefits and other expenses is invested directly into U.S. Treasury securities — which the government can tap into, but must pay back with interest.

5. Many believe it can be run better

The SSA, with more than 60,000 employees and 1,200 field offices nationwide, is struggling to keep up as the number of retirees rapidly increases. “There aren’t enough resources to take care of all the people now, and another 10,000 people turn 65 every day,” according to Richtman. A recent audit showed that average wait times at field offices increased by 32% between fiscal years 2010 and 2017, for example, and the number of visitors who had to wait more than an hour to be seen at a field office nearly doubled.

6. Your Social Security benefits can be taxed

If you have other income in addition to SS, you might have to pay federal taxes on your benefits: for single filers with combined annual income exceeding $34,000, up to 85%; for couples filing jointly, up to 85% if their combined income tops $44,000. Thirteen states use different variables to tax SS benefits.

7. Social Security is not meant to be a retiree’s sole source of income

The SSA says the program’s retirement benefits will replace only about 40% of preretirement wages of a person with average earnings. Yet, 26% of those 65 and over who receive a monthly SS benefit today live with families that depend on it for almost all of their retirement income, while 50% say their families depend on SS for at least half their income.

8. The purchasing power of Social Security is diminishing

The SSA’s formula to calculate its annual cost-of-living adjustment, which is intended to help beneficiaries’ monthly checks keep up with inflation, does not fully account for the average older American’s medical costs. AARP says these costs have been increasing faster than other goods and services. An average American 55 and older spends about 27% more annually on health care than the overall population, according to the Bureau of Labor Statistics.

9. You can work and get Social Security

Be aware, however, that the agency will withhold some of your benefit if you are younger than full retirement age and your earned wages exceed a certain limit — in 2019, $17,640. Beyond that threshold, the government will temporarily withhold $1 from your benefit for every $2 earned over the cap. You will get this money back in the form of higher benefits once you hit your full retirement age. If you wait until full retirement age to start drawing SS, you can work as much as you like without having your benefits reduced.

10. Social Security has gone digital

The U.S. Treasury Department now favors electronic payments, and the SSA has also set up an online portal where you can track your benefits. AARP notes that using the website will help prevent scammers from setting up an account in your name and possibly stealing your benefits.

11. Social Security is not just a retirement program

Social Security comprises four types of benefits: retirement, disability, dependent and survivor. A person can sometimes qualify for more than one of these, but SS generally will pay only one benefit at a time to a person. It is important to ask about your eligibility for other benefits when filing for benefits and to inform SSA of any change in your family status.

12. Most people get back more than they put in

According to AARP, studies show that most people receive more in benefits than they paid into the program. As a general matter, married couples are likelier to get back more than they contributed than single people, and both low-income and high-income people may receive more dollars from the program over a lifetime than the amount of money they contributed to it. The Urban Institute issues reports that estimate how much people are paying into the program and what they are likely to receive in retirement benefits.

________________

About LRPC’s Monday Morning Minute

Lawton Retirement Plan Consultants, LLC (LRPC) Monday Morning Minute is crafted to provide decision-makers with important information about the economy, investments and corporate retirement plans in a format that allows a reader to consume the information in less than 60 seconds. As an independent, objective investment adviser, LRPC has access to many sources of research and shares the best and most relevant information with its readers each week.

About Lawton Retirement Plan Consultants, LLC  

Lawton Retirement Plan Consultants, LLC (LRPC) is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to employer retirement plan sponsors. The firm specializes in Socially Responsible Investment (SRI) strategies for retirement plans and is a pioneer in the field. LRPC currently has contracts in place to provide consulting services on nearly $475 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or bob@lawtonrpc.com or visit the firm’s website at http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, a plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges, and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.