In 2017, the average Social Security check was $1,360 per month. Social Security may not be enough for one to live off of solely in retirement, but it certainly helps as a supplemental form of monthly income when your regular income from your full-time job has ceased. However, the future of Social Security is a bit uncertain. Some fear a disappearance of Social Security benefits altogether, while others think it is more likely that Social Security benefits will just suffer a reduction—a sentiment that is more justified than the former.
A recent survey from the Employee Benefit Research Institute revealed that only 7 percent of those surveyed are “very confident” that the Social Security system will continue to provide the same benefits in the future that retirees are receiving currently. In addition, only 38 percent said they were “somewhat confident.” So what are the facts about the future of Social Security? Here are a few reasons why Americans may be right to question its sustainability.
- Full retirement age is higher. Full retirement age increased from 65 to 67 in the 1980s, with people born between 1943 and 1954 reaching full retirement age at 66. Higher full retirement ages means people will be penalized more for taking their Social Security benefits early and will receive lower bonuses for delaying taking their benefits. Lawmakers have discussed raising full retirement age yet again, which will further reduce the amount of benefits paid to workers.
- Cost of living adjustments may happen more slowly. Social Security currently bases its cost of living adjustments on the Consumer Price Index, but lawmakers are urging that it instead be based off of the new chained CPI. The way the chained CPI works (taking into account the substitution effect), it results in a slower projected rate of inflation, making Social Security benefit increases happen at a slower rate than with the regular CPI.
- Trust funds are poised to run out. The Social Security program is expected to use up its trust funds by 2034, leaving payroll tax and other revenues to cover benefits. Projections suggest that these sources will only be able to account for about 75 percent of benefits, resulting in a 25 percent cut for all retirees. Lawmakers have time to work toward a solution, but if they are not able to, then significant reductions in benefits will be inevitable.
So with the future of Social Security looking bleak, what can you do to solidify the money that will support your life in retirement? The answer is to have a smart savings plan and not to plan to rely on Social Security as your main source of income. The bulk of your retirement income should come from your own savings efforts.
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