Social Security Benefits: Should you factor in this benefit into your Retirement Plan?

As we collaborate with our clients to shape their personal financial plans, the matter of social security benefits naturally comes up. Our fundamental approach is straightforward: the greater the amount of time you have to execute your plan, the more you can regard Social Security benefits as a footnote element to your strategy. It's essential to recognize Social Security Administration’s nature as a government program. Much like the reliability of government cheese in times of need, Social Security benefits provide a safety net; however, our financial planning approach encourages clients to aspire for a more higher-quality cheese, aligning with their unique goals and aspirations. Because just like government cheese, social security benefits may not be available forever.

Did you know that the Trustees projects the depletion of the OASI trust fund reserves by 2033?

Many countries around the world have social security programs or similar systems designed to provide financial support to individuals in different life circumstances. In the United States it focuses on supporting retired and disabled workers and their families. The program is administered by the Social Security Administration which is a federal agency. And, although it is also used for Medicare, Survivor and SSI benefits it should be understood that it was not designed to be a sole source of retirement income.

As it stands, the agency may soon have the former Maryland Governor Martin O’Malley as the new Commissioner. O’Malley who attempted to receive the democratic presidential nomination back in 2016 has already been quoted saying that, he would like to tackle and fix the program’s flaws. Personally, my view of these benefits remains biased because it seems the program is always be at an impasse. We certainly hope, for all the recipients sake, that the potential new commissioner restores the health of the agency. However, I cannot disregard the possibility that by the time many of our clients are set retire the Social Security Administration may be a completely different version from it’s existing standing.

The funding for Social Security primarily comes from payroll taxes paid by workers and their employers. These taxes contribute to the Social Security trust funds, which are used to pay benefits to eligible individuals. To qualify for retirement or disability benefits, individuals must earn a certain number of work credits. Work credits are based on your annual income and are earned through paying Social Security taxes on your earnings. The exact number of credits needed depends on the type of benefit you are seeking. Click here if you’re interested in checking the amount you’ll be eligible to receive at different ages.

As a financial planner, navigating the dynamic landscape of retirement is crucial, requiring skill and practice to guide individuals toward robust retirement plans. As a company we strive to stay updated on the latest information & news that could affect these plans. Unfortunately, social security benefits in their current state will not be an important topic of discussing until the administration revamps not only their workforce but the way the trust funds are invested. From an outside perspective the agency seems to be operating in a very outdated model and requires a substantial overhaul to reach long-term sustainability. We advocate for a proactive approach to secure a more effective system for future recipients, one that goes beyond relying solely on special non-marketable U.S Treasury securities.

Can we all agree that FICA, a mandated payroll tax, warrants a crucial conversation about its effectiveness and potential improvements to ensure a more stable and sustainable future for retirement funding?

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