Social Security is complicated, to say the least. Politicians talk about it all the time, but it’s hard to know the lies from the truths. The rules always seem to be changing, and the proposed Republican tax plan could muddy the waters even more.
While there is plenty of confusion around Social Security, some things are certain: You probably don’t know enough about it, the future of the program really is in doubt, and Social Security causes a lot of retirement anxiety.
We’ve heard Social Security is in bad shape for years. The following numbers show just how bad it really is.
- Why it’s depressing: Annual income you need to pay the max Social Security tax
In 2017, you need to be making $127,200 yearly to pay the maximum amount allowed into Social Security. When you retire, it would ensure you get the maximum payout. But the Bureau of Labor Statistics says the median weekly income of full-time employees is $859. That adds up to just $44,668 per year, nowhere near what’s needed to get the max Social Security benefit. Just 6% of retirees earn the maximum benefit.
Next: Average Joes don’t receive a windfall.
- Why it’s depressing: The average monthly benefit if you retire at 62
At first glance, $926 average benefit (as of 2015) isn’t too scary. You could have a nice little spending spree with that money in hand right now. But as we just saw, the median weekly income is $859. When you do the math, the $926 monthly payout is only $67 more than the median weekly income from item No. 1 on our list. As we are about to see, that’s not even the worst part.
Next: A staggering number that should be easy to improve.
- Why it’s staggering: Percentage who don’t know their full retirement age
A survey conducted by Fidelity in 2017 found that 26% of pre-retirees didn’t know their full retirement age. It’s the age the Social Security Administration uses to gauge payments. The longer you wait to claim benefits, the more you get paid. The fact that more than a quarter of people close to retirement don’t know at what age they can get full benefits is staggering. Why is it staggering? Because all you have to do find your full retirement age is going to just one of several websites.
Next: Our next number is even more depressing.
- Why it’s depressing: It’s the federal poverty level
The federal poverty level for 2017 is $12,060 annually, according to Zane Benefits, or $1,005 per month. As we discovered in item No. 2, if you retire at 62 your average monthly Social Security check will be $926. If you have no other retirement income heading your way, you’ll be living below the poverty level. So much for enjoying the golden years, huh?
Next: Make sure you don’t get sick.
- Why it’s depressing: It’s the minimum Medicare Part B cost
Let’s say you retire at 62, take Social Security, and receive the average monthly benefit of $926. If you’re on Medicare Part B insurance, you’ll be paying $109 per month for coverage. That’s 11.6% of your monthly Social Security benefit. That leaves just $817 for other expenses, like food, utilities, and the medical bills coming your way after the doctor’s visits. And that’s not even factoring in costs like Medicare Parts A (hospital coverage) and D (prescription drug coverage).
Next: We see just how important Social Security is.
- Why it’s staggering: Percentage of retirees who rely heavily on Social Security
Just how important is Social Security? According to the Social Security Administration itself, 43% of single seniors and 23% of married couples rely on Social Security for at least 90% of their retirement income. So a strong majority of retirees get the bulk of their income from Social Security, making our first five numbers even more depressing.
Next: Let’s do some math to arrive at a truly depressing number.
- Why it’s depressing: Lifetime medical costs for a retired couple
Let’s do some simplified math, shall we? Let’s assume both you and your spouse retire at 62 and you each receive the average $926 Social Security benefit. That’s $1,852 per month and $22,224 per year total between the two of you. Now let’s say you’re each paying $109 for Medicare Part B coverage each month. You’re out $218 per month and $2,616 per year total, taking your annual income down to $19,608 each year. If you each live another 25 years, you’ll have $490,200 in total income. Subtract $404,253, the average total healthcare cost for a retired couple, from that and you’re left with $85,947 left to spend. It boils down $3,437 per year. Do you think you can live off that amount?
Next: You’d better get it right the first time.
- Why it’s staggering: Percentage that believes Social Security benefits are adjustable
The Fidelity survey we mentioned above comes with another depressing number. Thirty-eight percent of pre-retirees believe you get Social Security do-overs. They “thought it was possible to change one’s Social Security claiming strategy throughout retirement. [I]n other words, to claim early at 62 and then, when reaching 66 or older, have payments increased to the amount corresponding to full retirement age benefits,” according to the survey.
You can change your mind if you already started claiming benefits, but there are restrictions. You only have 12 months to change your mind. Any longer than that and you have to pay back what you’ve taken.
The big takeaway from all this? Educate yourself and have a plan other than Social Security.
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