Social Security has been an important resource for retirees for nearly 80 years. It was created in 1935 when President Franklin D. Roosevelt signed the Social Security Act.1 The legislation created for the first time a government organization that would provide financial assistance to the elderly, disabled and surviving spouses and children.
After a name change from the Social Security Board to the Social Security Agency, the agency started collecting payroll taxes in 1937. The first benefit was paid out to a Cleveland motorman later that year. He collected a lump sum of 17 cents.1
From 1937 to 1940, the SSA made lump-sum benefit payments while allowing the collected payroll taxes to accumulate. In 1940 the agency made the switch to guaranteed monthly lifetime payments for all retirees age 65 and older. The benefits and eligibility requirements have changed slightly over the years, but Social Security operates today much like it did in the 1940s. Below are common questions and answers about Social Security and the role it may play in your retirement:
Social Security Coverage
Social Security provides financial assistance to a wide range of Americans. As of December 2017 the program paid benefits to more than 45 million retirees and dependents, over 10 million disabled Americans and dependents, as well as 6 million survivors. Retirees account for 72 percent of benefits; disabled workers account for 16 percent, and the remainder is paid to survivors.2
Nearly 9 out of 10 retirees rely on Social Security benefits for income.2 Research indicates that many seniors rely on Social Security for a substantial portion of their income. Among retirement benefit recipients, half of married couples and 71 percent of singles say that Social Security represents more than half of their income.2
Filing for Social Security
You’re eligible to file for Social Security as early as age 62. However, your benefit could be reduced as much as 35 percent if you file at that time. To avoid a reduction, you need to wait until your full retirement age (FRA) to file. Most people reach their FRA between their 66th and 67th birthdays.3
There’s nothing saying you have to file at your FRA, though. In fact, you can wait all the way to age 70 to file. Doing so could substantially increase your benefit amount. Social Security offers an 8 percent benefit credit for every year that you wait after your FRA. If your FRA is 66 and you wait until age 70 to file, that’s a total permanent benefit increase of 32 percent.4
Social Security Solvency
There’s been plenty of news about Social Security’s funding issues and solvency problems. It’s true that Social Security faces serious financial challenges, but the program won’t disappear anytime soon. In 2020 the SSA will start paying out more in benefits each year than it collects in payroll taxes. That means it will have to dip into the trust fund, which is projected to be depleted by 2034.5
Even after the trust fund is gone, however, the program will continue to collect taxes to fund benefits. Experts estimate that with benefit cuts, perhaps as much as 21 percent, the program could remain solvent through 2090.5
Ready to plan your Social Security strategy? Let’s talk about it. Contact us today at Thomas Financial. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
The material is not intended to be legal or tax advice. The insurance agent can provide information, but not advice related to social security benefits. Clients should seek guidance from the Social Security Administration regarding their particular situation. The insurance agent may be able to identify potential retirement income gaps and may introduce insurance products, such as an annuity, as a potential solution. Social Security benefit payout rates can and will change at the sole discretion of the Social Security Administration. For more information, please consult a local Social Security Administration office, or visit www.ssa.gov
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