Social Security Expected to Drop 23 Percent in 2034
Volume 18, Issue 3
In this report, you will learn the following about Social Security:
- Whether or not it is going broke
- How to receive an estimate of your benefits
- Why benefits are expected to drop 23 percent in 2034
- How your Social Security benefits are calculated
- The effects of claiming Social Security before or later than age 66
For years, we’ve all heard the questions.
Is Social Security broke? Can we count on it being around when we retire? If so, to what extent?
The short answers are:
- It is not going broke;
- It will be around;
- It will likely pay about 77 percent of expected benefit levels by the year 2034, according to the Social Security Administration.1
Trust Funds that Subsidize Social Security Will Run Out by 2034
Since its inception in 1935, Social Security has been funded through income taxes on American workers. For most of its history, there were more workers contributing to Social Security than retirees receiving withdrawals, so all was good. So good, in fact, that the program had $2.85 trillion in reserves at the end of 2016.
However, since 2010, Social Security has been paying out more in benefits than it has been collecting in tax revenues. More and more people – primarily “baby boomers” – are reaching retirement age and claiming their Social Security benefits. That huge reserve – in the form of trust funds established in 1983 -- has already been tapped, and will continue to be tapped. The most recent projections are that the trust funds that subsidize Social Security will run out of money in the year 2034.
Your Social Security benefit is based on a formula that indexes all of your annual earnings for inflation, up to the Social Security taxable maximum each year, and considers your 35 highest-earning years. These are then averaged together and divided by 12 to produce your lifetime indexed average monthly earnings.
"Full Retirement Age" Adjusting Toward 67
This average is applied to a formula to determine your “primary insurance amount,” or PIA, which is your monthly benefit if you were to retire at your full retirement age, which is age 66 or later for most people.
For birth years later than 1954, these are the “full retirement age” adjustments:
- 1955: 66 years, 2 months
- 1956: 66 years, 4 months
- 1957: 66 years, 6 months
- 1958: 66 years, 8 months
- 1959: 66 years, 10 months
- 1960 and forward: 67 years
Finally, since you have the option of claiming Social Security at any time between age 62 and 70, your benefit will be permanently adjusted higher or lower to compensate, if you claim at any age besides your full retirement age.
Each full year after age 66 that you defer claiming Social Security will result in an 8 percent increase in monthly benefits. The highest overage is a 32 percent monthly increase which you would realize if you wait until age 70 or thereafter to begin claiming Social Security. Likewise, for each full year under age 66, your monthly benefit will be reduced by 8 percent.
Ways to Estimate Future Benefits
You can get a good estimate of your future Social Security benefit, based on your current work history, from the Social Security Administration. Officials there are advising people who have not already created an account at www.ssa.gov to do so. This will hamper the efforts of identity thieves who have someone’s personal information, including Social Security number.
Visit the Social Security Administration’s quick calculator2, where you can input some of your data to get an instant online estimate of your monthly benefit.
As of June 2017, the average monthly benefit for a retired worker was $1,369. According to the Social Security Administration, Social Security represents about 34 percent of the average beneficiary’s income in retirement, so it is substantial.
It’s a good time to schedule a review of your retirement plan with your financial adviser, and make sure the expected 23 percent reduction in Social Security benefits beginning in 2034 is accounted for in your plan.
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