The following is a post from staff writer Crystal at Budgeting in the Fun Stuff, where she writes about finding the balance between paying your bills, saving for your future, and budgeting for the fun stuff along the way.
Everyone knows that the United States Social Security System is in trouble, but nobody knows exactly how it will affect them.
The Social Security System is bordering on insolvency and will have trouble meeting its obligations going forward. Last year, the federal government paid out more in benefits than it received in payroll taxes for the first time ever, and the Social Security is projected to run annual deficits going forward as well.
The President’s deficit commission and Congress are considering making sweeping changes to the Social Security program, but nothing is known for sure yet. Unless the federal government performs a major overhaul, the Congressional Budget Office is forecasting that the entire system will be bankrupt by 2037 and anybody after that will have to receive their benefits only from what comes in from active workers.
What does this mean for you?
If you are under the age of 40, you really shouldn’t count on Social Security existing in its present form when you retire. Whether or not Social Security will be revamped, the program will not be in the same position as it was for your grandparents. Here are some of the changes that may take place.
Means testing has been mentioned for Social Security over the years. This means that the amount of payments that you would receive from Social Security would be based upon your need for the money instead of it being based on how much you have paid into this system. Anyone with assets in a 401k plan or an IRA would receive lower monthly payments than an individual with no retirement plan whatsoever. Those with substantial resources would not be eligible for any payment whatsoever. This system would be awful for me since we will have significant savings and retirement funds.
Pushing Back the Age of Eligibility
There has also been a lot of discussion about pushing back the age of eligibility to 70. Since more Americans are living longer, the thought is that they can work longer and/or save more for their own retirements. Raising the age of eligibility would save the Social Security System billions of dollars but obviously means that Americans will have to work longer or save enough to cover the time between their retirement date and age 70.
Overall, senior citizens and current retirees should expect their benefits to remain in place, but younger individuals like me should plan their retirement around much lower Social Security payouts at a later date.