This story is part So moneyan online community dedicated to financial empowerment and advice, led by CNET Editor at Large and So Money podcast host Farnoosh Torabi.
Social security is a priority for many.
Recently, a significant increase in the cost of living to the benefits was announced to help improve the toll high inflation takes the portfolio of many seniors. And before midterm elections this weekwe started to hear about how some republican politicians want to throw those federal benefits on the chopping block.
“It’s an ideological battle that’s been going on for 85 years,” says William Arnone, CEO of the National Academy of Social Welfare, a nonpartisan organization that aims to educate the public about the benefits of Social Security.
Like other American employees, I’ve dutifully contributed to Social Security since my first gig in high school (I was a hostess at a 1950s-themed restaurant). I’m sure I speak for my generation when I say that if the government decides to take away our monthly paychecks in retirement, watch out, Uncle Sam. You’ll find us protesting in the streets, brandishing our canes.
I recently asked my Instagram followers to ask me their related questions and found there was a lot of confusion regarding the fate of one of the few social insurance programs in this country. I’ll break down some of their questions below, then offer insight into what each generation could expect from Social Security in the future.
First, why is social security important?
Congress passed the Social Security Act in 1935 during the Great Depression. Funded by taxpayer payroll contributions, the program was set up to meet the financial needs of the aging population and some disadvantaged Americans.
There are a lot of misconceptions around Social Security, including that it’s a kind of welfare, Arnone explained. But in fact, it is insurance that Americans pay for. Today, 1 in 4 households receives at least 90% of their family income of Social Security. In addition to pensioners, social security also pays benefits to disabled workers and certain family members of deceased workers.
The median Social Security check is $1,600 per month. It won’t solve all of our financial needs, but we will need all the support we can get to enable us to retire.
Will social security disappear?
The Social Security Administration says the fund simply enough reserve pay retirees for the next 13 years. After that, our taxes will only provide about three-quarters of the intended benefits. The Biden administration has offers a plan to lower the cost of living for seniors, including preserving social security, but we must not hold our breath.
Whereas 74% of Americans say Social Security should remain intact, 83% doubt the program will fully survive when they retire, according to the Pew Research Center. This skepticism is not unfounded. Arnone told me that because there is no constitutional protection, Social Security is quite fragile. “Congress gives and Congress can take it back,” he said.
We can’t help but be concerned about this, especially when a recent poll indicates that American adults think a “cozy retreatnow means having $1.25 million in the bank, and while average retirement savings have fallen 11% in the last year alone.
If you retire early, what happens to your benefits?
A listener wanted to know if working under 30 would be detrimental to his Social Security earnings. The short answer is: maybe. The amount you earn in your 35 highest earning years plays a vital role in how big your Social Security paycheck is. If you worked under age 35 because you took early retirement and didn’t earn any money, or you took a few years off to care for a family member, those years add up $0 and can lower your average Social Security earnings. Keep this in mind when planning time off from work.
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Will Baby Boomers Get Social Security?
Current retirees probably have the least to worry about when it comes to receiving Social Security. The elderly are also due to receive a raise in January, thanks to a cost of living adjustment, increasing payouts by 8.7%. For the average payee, that’s an additional $146 for a total of $1,827 per monthly check. This hopefully means your Social Security dollars can retain their purchasing power against inflated prices on everything from food to gas and travel. Beneficiaries should inquire about their specific benefit rates by mail in December. You can also check your new total on the Social Security website.
If you haven’t yet reached retirement age, but that day is approaching, know that if you wait until you are 70 to benefit from Social Security, your benefit jumps by about 8% per year above beyond full retirement age. (Full retirement is 67 for anyone born in 1960 or later.)
Here is the breakdown of the maximum sum of money you could get monthly in 2022:
- Collecting Social Security at age 62: $2,364
- Social Security collection at age 67 or full retirement age: $3,345
- Collecting Social Security at age 70: $4,194
Should Gen X and Millennials Worry About Social Security Benefits?
Here’s some advice for my Gen X friends born between 1965 and 1980, as well as millennials born between 1981 and 1996: Chances are there will be changes to Social Security in the next decade, so even if we receive the benefit, the amount may be reduced, or we may not be able to start collecting until a later age, according to Arnone.
If Social Security is still there, it may not fully meet my retirement needs (hello, unreimbursed medical expenses!). But that’s not a small change either. i ran this quick calculation online and I learned that right now my husband and I are on track to earn over $3,000 a month at full retirement age. Knowing this, we are a little less stressed about investing every spare penny in the stock market. It also encouraged us to keep working to maximize our social security potential – and have the income to invest on our own.
The more you earn now, the more taxes you will pay and the higher your Social Security paycheck will be. Nonetheless, aim to invest at least 10% to 15% of your paychecks each year in a retirement plan. like a 401(k) by work and/or Individual Retirement Account. That way, no matter what happens to Social Security, you’ll have extra padding.
Is there hope for Social Security for Gen Z?
Much of my audience worries that Social Security is going the Blockbuster way and simply becoming a relic of Grandma’s life. I hope not. Future generations may need this support even more, as life expectancies rise and pensions become obsolete, Arnone says. He hopes Gen Z will champion it and see it as a crucial financial lifeline for older people. When I asked him what kind of advice he would give, he said, “You need it… Factor it into your planning. Don’t dismiss it.
My hope for Gen Z is that they continue to enjoy their unprecedented access to financial literacy on line. They should push for systemic changes and laws that can make life more affordable, but they shouldn’t wait to invest in their future. This means bargain for more revenueavoiding the credit card debt cycle as best they can and work hard to ensure their financial independence. I am optimistic that Gen Z will be one of the most informed and inspired generations to date. If they push to keep Social Security, that will be the icing on the cake.