We’ve all heard it before: Social Security is going broke and will leave millions of Americans destitute in the next couple of decades. This line of reasoning is typically overdramatized for media headlines, but that doesn’t mean you should ignore your current contributions and future benefits, whatever they might be.
Where does Social Security stand today? In 2014, more than 59 million Americans will receive almost $863 billion in benefits. Without some type of reform, benefits will need to be cut by 23 percent in aggregate in 2033, according to a recent report from the Social Security Administration. In other words, after the depletion of reserves, continuing tax income is expected to be sufficient enough to pay 77 percent of scheduled benefits in 2033.
Even without a cut in benefits, Americans need to maximize their Social Security payments. Pension plans are becoming extinct, and Social Security is playing a larger role in retirement portfolios. In fact, 51 percent of the workforce has no private pension coverage, while 34 percent lack savings set aside specifically for retirement. Let’s take a look at two simple ways to maximize your Social Security benefits.
1. Track your information
Despite what politicians may say on the campaign trail, no one cares about your financial future as much as you. In order to receive as much as you can, you should keep track of important Social Security information. Consider this: nine out of 10 individuals age 65 and older receive Social Security benefits, representing about 38 percent of the income received by the elderly.
The Social Security Administration now offers online accounts so that Americans can stay up to date on their financial situations. An online account allows you to keep track of your earnings and verify them every year, estimate future benefits if you are still working, or change personal information, such as your address and phone number. You can even alter direct deposit instructions if you’re already receiving payments. As of the end of August, only 13.9 million Americans have an online SSA account.
To ensure accuracy, you should also consider saving every tax return, along with W-2 and 1099 statements. If the amount of your Social Security taxes paid ever comes into question, this move may be a financial life saver.
2. Evaluate your health and wealth
The golden rule of Social Security typically calls for Americans to wait as long as possible before drawing benefits, leading to larger payments in the future. For example, someone born after 1960 can receive 124 percent of his or her monthly Social Security benefit by retiring at age 70 instead of age 67. Social Security benefits could be taken as early as age 62, but that person would only receive 70 percent of his or her monthly benefit. However, your personal situation still needs to be considered.
If you have a health problem or family history indicating you will not live for decades beyond 62 years old, you may want to claim Social Security as soon as possible so that you have time to enjoy the fruits of your labor. On the other hand, if your health and finances are stable, you may want to wait, as the odds say you will probably live longer than you think.
As you near typical retirement age, the probability of you living for another decade or two is remarkably high. Men aged 65 today have a 78 percent chance of living another 10 years, while women have an 85 percent chance, according to a report by JPMorgan. Interestingly, the odds of a long life increase dramatically for couples. In fact, couples aged 65 today have an astounding 97 percent chance that at least one of them lives another 10 years, and an 89 percent chance that one experiences his or her 80th birthday. It almost comes down to a coin flip that at least one person in the relationship lives to 90.
Follow Eric on Twitter @Mr_Eric_WSCS