50+ Lifestyles

80-year-old Social Security is Retirement Center Piece

By Richard J. Schillig, CLU, ChFC, LUTCF
Independent Insurance and Financial Advisor

In July 1935, President Franklin D. Roosevelt signed into law the Social Security System. Now 80 years later, Social Security remains the center piece of America’s retirement planning. Eight out of 10 workers and 9 out of 10 retirees continue to count on Social Security as this center piece or safety net for retirement. These workers and retirees are counting on the system as a source for retirement income. Today’s media focuses greatly on the real challenges facing the Social Security system and the reality of our demographics. Let’s review these challenges.

Social Security retirement income is created primarily from taxes made by workers paying into the system via a 12.4 percent payroll tax – 6.2 percent each from employer and 6.2 percent from employees. Self-employed persons must pay both…and sometimes that’s a real penalty for self-employment but that’s another topic. Today because of Americans longer life spans and lower birth rates, there are not enough workers paying into the system to support the growing number of Social Security beneficiaries. Let’s look at the numbers:

• In 1955 there were 8.6 workers to support one social
security beneficiary.
• In 1965 that number changed to 4 workers paying into
system to support 1 beneficiary.
In 1975 that number changed to 3.2 – now let’s fast forward to today…
In 2015 the ratio again changed to 2.8 workers
By 2035 the ratio will change to 2.1 workers
And then level off – Those are the facts folks – that’s how we stand with the centerpiece of our retirement system. Congress has been talking about changes to the Social security system for years BUT nothing concrete has been proposed or discussed. AND with 2016 bringing in a Presidential election year….I don’t expect anything serious to happen or be discussed until after next year. But I am confident Congress will take action. I am confident with eventual Congressional action the system will survive and remain the center piece of our retirement system. Those actions will probably be increased taxation and/or reduction of benefits or a combination of both.

Each taxpayer has paid lots of money into the Social Security system. Over our working years we paid – 6.2% tax on our earnings matched by employers. These dollars paid into the system is probably represents more money than any other retirement program that we have paid into over our working life. Therefore as retirement now approaches wise planning calls for developing strategies to maximize monthly retirement income. I read somewhere recently that 65% of retirees will take Social Security retirement early – at age 62 – instead of waiting to full retirement age. That early retirement decision results in a 25% reduction in retirement income for lifetime. Planning can help to minimize or eliminate that reduction entirely.

Years ago Social Security automatically sent out projections on retirement income to everyone. These projections estimated monthly retirement income at age 62 AND at full retirement. This information was very helpful in planning. Budget cuts resulted in Social Security stopping this practice. Today this same helpful retirement planning information can be obtained at www.socialsecurity.gov I encourage all to acquire this valuable information.

Good planning strategies may allow Social Security beneficiaries the option of postponing taking reduced monthly income. AND good planning may continue to provide for that early retirement at age 62 by creative use of other retirement assets to offset social security income. Our split annuity strategies are ideal for this arrangement. Our planning has accomplished this objective for many of our clients. See our ad this page. Call us for a review of your Social Security options.