If you ask millennials about their plans for retirement, many will most likely leave out one option that their parents and grandparents have considered an essential part of their retirement plans: Social Security. Why? In all probability, media reports of Social Security’s uncertain future and political debates over the need for reform have influenced their lack of confidence. However, the picture is not as bleak as it may appear. So before you write off Social Security as an option entirely, it’s important to understand the facts.
Myth: Social Security will be bankrupt within the next couple of years.
The Facts: The Social Security and Medicare Trustees did issue a report recently that stated that by 2034, trust fund reserves would be depleted. This does not mean the entire fund would be depleted, just the reserves that are being used to cover shortfalls between money taken in and benefits paid out. The calculations in the report projected these numbers assuming no changes are enacted in how funds are collected or allocated.
The good news is that since we have advance notice of potential shortfalls, we can make needed changes. Certainly, payroll taxes will continue to be collected, so the balance will not be zero. There are also a number of changes Congress can enact to ensure benefits will be available for future retirees, such as raising the retirement age, increasing the tax rate and raising the payroll tax cap, or the highest amount of income that can be taxed.
Myth: People who haven’t worked outside the home can’t collect Social Security.
The Facts: If you were married for at least 10 years, you can collect a percentage of your spouse’s benefits, based on his or her earnings. What you collect will not affect your spouse’s benefit. According to the Social Security Administration, the requirements for a spouse to collect benefits are, in addition to having been married at least 10 years, you must be at least 62 and your spouse must be receiving retirement or disability payments. Even if you are divorced, you still may qualify.
Myth: You have no choice about how much money you receive from Social Security.
The Facts: The amount of money you receive from Social Security depends on your total earnings and the age you elect to start receiving benefits. Currently, retirees can start receiving benefits as young as age 62, although they would not be eligible to receive the full benefit unless they have reached the full retirement age. An individual’s full retirement age depends on what year he or she was born. Retiring later will generally translate to increased monthly benefits. In general, for each year past the full retirement age that an individual delays retirement, he or she will receive an additional 8 percent benefit. You can estimate your projected benefits at different ages using a Social Security calculator.
Myth: Social Security only affects today’s retirees.
The Facts: Chances are you’re already paying Social Security taxes. Those taxes are funding current beneficiaries of Social Security. When it’s your time to collect Social Security benefits, taxes paid by younger workers will aid your retirement. And, although there will likely be changes in the administration of Social Security in the years to come, starting to save for retirement now will make it easier to reach your goals. Learn more about retirement savings and develop a plan that works for you.