As additional members of the Baby Boomer generation arrive at retirement age, the Social Security system will become even more strained.
Young or old, if you get a paycheck or make estimated tax payments, you no doubt feel the bite that Social Security takes. Originally, those taxes represented a promise of future benefits. But unless you are on the cusp of retirement now, that promise may sound more and more like the refrain of an old cartoon character who regularly vowed, "I'll gladly pay you Tuesday for a hamburger today."
Unfortunately, many people are wondering ... who's going to pay and who qualifies for benefits?
Does your marital status affect the amount of Social Security you can collect? In some ways, yes. For example, suppose a spouse's estimated benefit is considerably lower than her husband's. She is entitled to receive payments based on her own record, or 50% of her spouse's benefit, whichever is higher. Assuming your monthly amount is $1,600 and your spouse's is $700, he or she is entitled to draw benefits equal to half of your amount, or $800. In fact, even if your spouse has never worked, at full retirement age he or she can collect an amount equal to half your benefit.
In another example, suppose you were married for 12 years, then divorced and later remarried. At retirement time, who can collect benefits based on your record ... your current spouse or your former spouse? The answer might be both. Your divorced spouse can receive benefits based on your record if he or she:
To qualify, your former spouse must meet the above requirements, must not have applied for benefits on his or her own record and must have been divorced from you for at least two years. The maximum payment a former spouse can receive is 50% of the amount you would receive at full retirement age. In addition, benefits are only payable to your former spouse as long as he or she remains, or becomes, unmarried.
Important Point: The amounts paid to your former spouse will not affect the benefits paid to you or other family members who receive benefits based on your record.
If you have a pension through your job, will those payments reduce your Social Security benefits?
The answer depends on whether or not the work that generated the pension was subject to Social Security taxes. If Social Security wasn't withheld from your paycheck, your pension payments probably will reduce your benefits, under the 1983 Windfall Elimination Provision (WEP). Work that falls into this category may include civil service (federal, or some state and local), and employers outside of the United States.
The WEP was passed to prevent people who paid less Social Security taxes from collecting unfairly high benefits in addition to their pensions. The amount of reduction will depend on how many years you worked without paying Social Security tax and when you expect to retire.
The ability of future retirees to collect Social Security benefits depends on numerous factors, some on a national scale, such as the pending retirement of the enormous Baby Boomer generation. Other factors are more personal, like marital status. This underscores the point that no one should rely on these payments for all or most of their retirement income. The Social Security program has been described as one leg of a "three-legged stool," the other two legs being personal savings and other retirement plans.
When you consider that the average monthly benefit check for 2024 will be about $1,907, it's clear these payments are meant to be a foundation, rather than the makings of a cozy nest. That's why ensuring a comfortable retirement has to be a matter of personal responsibility guided by the wise counsel of a trusted financial advisor.
Social Security is basically a "pay as you go" system, with today's workforce paying the benefits of today's retirees. There is presently a surplus, which is invested in special-issue Treasury Bonds to help pay future obligations. But as the population of retirees grows, the SSA foresees problems down the road unless the current system is changed.
Here's why: In 2018 nearly 63 million retirees and their dependents receive Social Security benefits totaling about $1 trillion. For each retiree, 2.8 members of the workforce are paying into the system to support current benefits.
By 2035, the Social Security Administration estimates the number of older Americans will rise from today's level of 63 million, to over 77 million. And the number of workers for each Social Security beneficiary will drop from 2.8 to 2.2.
Unless there are changes, annual costs could exceed income eventually, exhausting the program assets. Possible solutions include gradually raising payroll taxes (from the usual rate of 15.3% to 17.78%, and possibly reducing benefits.
In spite of the fact that Social Security was never intended to be more than one leg of the three-legged stool, for most beneficiaries, it represents the biggest part of their retirement funding.
Among current Social Security recipients who are elderly:
"We shall make the most orderly progress if we look upon Social Security as a development toward a goal rather than a finished product. We shall make the most lasting progress if we recognize that Social Security can furnish only a base upon which each one of our citizens may build his individual security through his own individual efforts."
— Former President Franklin D. Roosevelt