Social Security is a program you get the joy of paying into your entire working life. The prospect of this valuable retirement income stream not being there once you leave the workforce is alarming to many Americans. As it stands now, it is not a question of “if Social Security will run out of money” but when. As come towards the beginning of the end of the COVID economy, you may be wondering will the Coronavirus hasten the demise of Social Security?
According to the recent eighth annual Social Security Consumer Survey by Nationwide, a staggering 71% of Americans are worried that Social Security will run out of money during their lifetimes. At the same time, 19% of respondents stated that the Coronavirus pandemic would likely change when they chose to claim Social Security benefits. I am going to go out on a limb and guess that some of the 29% of people (apparently) not worried about Social Security running out of money are in one or more of the following categories:
1) Have some other government pension (think Congressman and Senators)
2) Are so rich it doesn’t matter (think multi-millionaires and billionaires)
3) Have already begun Social Security benefits.
While the boom in real estate transactions and soaring stock markets have been reasons for optimism, the Coronavirus has led to a more pessimistic outlook regarding things like Social Security. According to the survey, 59% of Americans are more worried about Social Security running out of money today than before the pandemic.
Interestingly, more people are planning on claiming Social Security later (11%) versus claiming earlier (9%). Waiting to claim Social Security will increase your monthly benefits. This delay can also help increase your financial security later in life.
Annually, the Social Security trustees issue a report on the expected solvency of the Social Security program over the long term. The report has not yet been issued in 2021, post the darkest days of the Covid pandemic. (I am optimistic that at least in vaccinated parts of America – the worst days of the pandemic are behind us). So you know, the 2020 Social Security report estimated that the combined reserves of the various Social Security programs (retirement, survivor, and disability) would be depleted in 2035 unless changes to benefits on taxation are made.
The pandemic has been a wake-up call for many Americans to reevaluate their finances and retirement plans, including how Social Security fits into those plans. More than two-thirds of respondents to the Nationwide survey said it is now more important than ever to optimize their Social Security benefits.
It appears the financial advisor community is not adequately advising clients about the best Social Security claiming strategies. As a fiduciary financial planner, I feel Social Security guidance should be a part of every retirement plan. A majority of the respondents to the Nationwide survey stated that they had received no guidance from their financial professionals. (Shame on them). Furthermore, two-thirds of respondents said they would likely switch from their current financial advisor to another financial professional who could help them make the right Social Security claiming choices.
The Golden Girls may have gotten by on a fixed income, but you will likely find it hard to maintain … [+]
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Can You Live on Social Security Alone?
Social Security is not set up to replace anything close to your pre-retirement income. For most Americans, trying to live on only Social Security will be tough. If you are amazingly frugal and have paid off your home mortgage, you may be able to do it. The average Social Security check is just $1,543, per month, in 2021. To be fair, a couple, each receiving this amount, could be ok in many parts of the country if they are both living and thereby receiving Social Security benefits.
Maximum Social Security
The maximum Social Security check in 2021 is $3,895, assuming you claim benefits at age 70. While this does equate to a reasonable retirement income stream, it is far from replacing the income needed to obtain the maximum Social Security benefit. You would have needed an ongoing salary of around $140,000 (or more) to get the maximum benefit from Social Security.
Do your finances a favor and develop a plan of when to claim Social Security. Work with your financial advisor to determine the optimal time to claim benefits. If they aren’t up to giving you the advice you need, it may be time to upgrade to a financial planner who can help you maximize your Social Security benefits.