Can You Count on Social Security?

I can’t believe I’m trying to tackle the subject of social security right now. It’s super complex in it’s history, very controversial by nature, and the future of it’s solvency and makeup are unknown.

But, regardless of all of that, you and I both pay into the Social Security system. So it’s worth it to look close enough to at least provide an estimate of how much of your money you’ll be getting back, right?

Social Security 101

  • When people use the term social security they are actually referring to the social insurance program, the Federal Old-Age, Survivors, and Disability Insurance program established by the Social Security Act of 1935.
  • Social Security is collected through FICA payroll taxes, which is 7.65% of your earnings up to $106,800.
  • The current normal retirement age for full Social Security benefits is 67.
  • The average monthly benefit for current retirees is around $1,100 a month.
  • Social Security is the single biggest expenditure of the federal government.

From my understanding, Social Security started out as a social program to help those with the most dire needs in our country. Now it seems that social security has become the retirement program for just about everyone. Check out this chart from a recent Social Security survey put on by the University of New Hampshire Survey Center.

Who Needs Social Security

Who Needs Social Security?

That’s crazy. Almost 50% say they are at least very likely to need Social Security in retirement. What about 401Ks, IRAs, etc. Is all this just lost on everyone? Maybe I’m misinterpreting what “need” means in this survey. But I don’t think I’m misinterpreting the fact that Social Security has grown to be more than it’s original intention.

How Much Are You Estimated to Get?

If you want to know how much you can expect in retirement from Social Security, visit the SSA’s estimator page.

Social Security Benefit Estimator

Social Security Benefit Estimator

They also have a life expectancy calculator there. Puts me at 86 when I finally croak. You should also be receiving an annual statement from the SSA. You’ll be able to tell from that statement what you can expect in retirement.

But all this depends on the future solvency of Social Security. Will they continue cost of living increases (no increases for the last 2 years)? Will they start paying only a % of your benefit? Will they have to change the normal retirement date?

The Future of Social Security?

You hear a lot of hype about how Social Security is failing, or that it won’t be around by the time I retire. What’s the truth? Well, by the above chart I’d say that American’s won’t let it fail. When you have that many people depending on it, it’s going to remain a priority.

I just don’t see Social Security ever going away. It’s a ponzi scheme of sorts in that the earnings of the currently employed are needed to pay to those receiving the benefits. That being the case, everyone who has paid in at least 10 years of Social Security feels like they deserve to get those funds returned to them as benefits. So, once you work for 10 years, there’s no way in heck you’d say drop the whole thing. You put your money into the system, therefore, you don’t want it canceled.

The Trustees Report

Enough of my ramblings. What do the actuaries say? The Social Security trustees put out an annual report opining on the future of social security. They are required to do this just like any other investment house. Here’s what they said in their 2009 report.

“Under the long-range intermediate assumptions, annual cost will begin to exceed tax income in 2016 for the combined OASDI Trust Funds. The com­bined funds are then projected to become exhausted and thus unable to pay scheduled benefits in full on a timely basis in 2037. The separate DI Trust Fund, however, is projected to become exhausted in 2020.

For the combined OASDI Trust Funds to remain solvent throughout the 75-year projection period, the combined payroll tax rate could be increased dur­ing the period in a manner equivalent to an immediate and permanent increase of 2.01 percentage points, benefits could be reduced during the period in a manner equivalent to an immediate and permanent reduction of 13.3 percent, general revenue transfers equivalent to $5.3 trillion in present value could be made during the period, or some combination of approaches could be adopted. Significantly larger changes would be required to maintain solvency beyond 75 years.”

Side note: Where is the 2010 report? The 2010 trustees report has been severely delayed. That doesn’t sound good.

Can You Count on It?

If you go by the 2009 report, it looks like if you are retiring in less than 27 years (age 40 or older) you will receive your full benefit. Of course, I can’t imagine the 2010 report being better than 2009, so we’ll have to see if that holds up.

But let’s say you do get your full benefit. Is the future equivalent of $1,100 a month going to be enough for you in retirement? If that’s all you have at that time, then you’ll likely still be poor. Studies show that 12% of those on Social Security still live below the poverty line. Not a dream retirement for sure.

The moral of the story is that there a lot of moving parts here, but most of us can probably count on the future equivalent of at least $1,100 in retirement from Uncle Sam.

My advice is to play it ultra-conservative and forget about Social Security. Don’t count on it. If you get it, great. If not, no worries because you have your retirement set using your 401K and your IRA.

What’s your take on Social Security? How big of a roll do you think it will play in your retirement?

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About Philip Taylor, CPA

Philip Taylor, aka "PT", is a CPA, blogger, podcaster, husband, and father of three. PT is also the founder and CEO of the personal finance industry conference and trade show, FinCon.

He created Part-Time Money® back in 2007 to share his advice on money, hold himself accountable (while paying off over $75k in debt), and to meet others passionate about moving toward financial independence.


    Speak Your Mind


  1. Joe The Economist says

    Phil, I think your calcuation is off. You will only receive your full benefit up to 2036 (2011 report). If you are 42 you will retire the year that the system hits zero. If life expectancy is 76 (and it is higher for people who live to 50), you need to be 51 this year to ‘expect’ to get full benefits. “If you go by the 2009 report, it looks like if you are retiring in less than 27 years (age 40 or older) you will receive your full benefit. Of course, I can’t imagine the 2010 report being better than 2009, so we’ll have to see if that holds up.” All of this is based on some very generous economic assumptions.

    • Philip Taylor says

      @Joe The Economist I didn’t make any calculations, Joe. I just presented Government data from the 2009 report. I would agree that most projections are based on some assumptions. No one can predict the future.

      • Joe The Economist says

        @Philip Taylor

        The problem is the word “full benefit”. To receive a “full benefit”, you would have to be born in 1960 or before assuming that life expectancy is 76 because those born in 1961 will live long enough to have benefits cut. Say life expectancy is 77, you would have to be born in 1959 or before to get your full benefits. That assumes that 2036 is a good number.

        It is an important calcuation because 2010 was the first year in which a majority of Americans can expect to get substantially less from the system than has been promised. 2012 it will be a majority of registered voters. 2014 it will be a majority of registered/active voters. This is why you see politicians emerging willing to call the system a “ponzi scheme” instead of the “3rd rail.”

  2. SS was not intened to be a total retirement income. It was designed ti supplement your retirement income. I would suggest that the amount one is to recieve to be in perportion to what was put in for the 10 year period. After 10 years it should be prorated done to a standard minumum. I do not exspect to drawn SS and it would effect my retirement plans. There has been a lot of people that have never married and died that payed in to SS and a lot of marryed people that have paid into SSS that have died and have not drawn SS. It would not hurt my feelings if they did awhile with the program all together and put the responsability back on the people to provide for themselves.

  3. I looked into that study I referenced a bit more and it seemed to suggest that the change to ss that people would be most likely to accept is an increase in the cap on taxable earnings. Most people were strongly against the age move. And as we age into our late 40s and 50s I think we’ll have similar feelings.

  4. I don’t see myself benefiting from Social Security either. I figure by the time my parents’ generation (baby boomers) is through with it, there won’t be a whole lot left. I think you’re right to play it conservatively and not count on it at all as part of retirement. Even if you were guaranteed to receive $1,100, if it already puts people below the poverty line, imagine what it will be worth in 43 years (when I will be 67). And anyway, by that time the normal retirement age for full Social Security benefits will probably be in the 80s!

  5. I’m certainly not counting on SS, but I hope to get some return from the money I’ve put into the system for the last 20+ years. I’d much prefer to have all the money back and invest it myself, but since that’s not possible, we’ll just have to wait and see. I wonder how long people have really been wondering about the future of SS?

  6. I am planning for retirement with the assumption that I am getting nothing, $0, zilch, nada from Social Security. Anything that I do get will be treated as a bonus to my 401(k) / IRA savings.

  7. Greg McFarlane says

    Apparently, not a single actuary took a look at the Social Security Act before it became law. It never occurred to anyone in 1935 (or at least, not to anyone who could do anything about it) that:
    -people might stop dying young, and
    -while the population will grow, it will never be infinite.
    The number of retirees cashing checks grew far faster than the number of people paying into the system with their forced FICA payroll deductions. Working people outnumber retirees in absolute terms and always will, but each retiree receives much more on a monthly basis than each worker pays in. The balance shifted toward the retirees in the 1990s and can’t possibly stop.
    Social Security’s first recipient epitomized the point. Ida Fuller of Ludlow, Vermont paid into the system for 3 years before retiring in 1939. She contributed a total of $24.75. Ida lived to be 100. She received $22,888.92.
    Obama will be the last president with the option of passing the buck to his successor. After that, time won’t permit the system to do anything but implode. Either beneficiaries won’t receive what they were promised, stoking a political inferno, or benefactors will be forced to cough up so much of their earnings that it almost won’t be worth it to be employed.
    Government makes everything better, doesn’t it?

    • Joe The Economist says

      Greg, The history of Social Security shows that the problem wasn’t Ida Fuller. The problem has been Congress. The original law called for 6% payroll taxes. It started the tax at 2%, and would increase every three years to the 6% level. By 1944, Congress was repeatedly told that 6% would not be sufficient, and yet Congress waived all of the increases. Then Congress passed substantial increases in benefits in 1952, 1956, and 1958. Social Security was used as a re-election fund. Benefits were increased again in 1961, 1962, and 1965. Yet payroll taxes were not increased to 7% until the mid 60s.

      The problem isn’t Ida Mae. The problem is that we had 40 years of Ida Fullers. Today the unfunded obligation of Social Security is 17.9 Trillion according to the Social Security Administration. No year – not one in more than 70 – has Social Security maintained an actuarily sound intake of cash vs outgo.