Don’t let this social security mistake scare you
Editor’s Note: This story originally appeared on SmartAsset.com.
The Social Security Board of Trustees announced last month that the trust fund, partly responsible for paying out benefits, will be out of money by 2033, which is likely causing some retirees to fear that their monthly benefits could expire before they die.
However, a study by the Center for Retirement Research at Boston College shows why it is important to read beyond the headlines and understand how social security is funded.
Misinterpretation of the messages could result in some workers taking their services early and forfeiting larger payments later.
How media coverage can affect your plans
Boston College’s Center for Retirement Research (CRR) conducted an online survey of more than 3,100 respondents who were presented with a news article about long-term funding challenges for Social Security.
The article was based on the Social Security Trustees 2020 report, which projected the trust fund would be depleted by 2034, at which point ongoing wage taxes would continue to cover about 75% of benefits. The trustees have since revised that forecast in their 2021 report, saying the trust fund will run out of money by 2033.
All participants in the study received the same article to read – but with four possible headlines. The headline presented to a control group was simply: “Social security is facing a long-term funding deficit”. The other three headlines all highlighted the eventual depletion of the trust fund:
- “The Social Security Trust Fund will use up its reserves in 2034”
- “Social security funds on the way to bankruptcy in 2034, find trustees”
- “Revenues are expected to cover only 75 percent of the scheduled social security benefits after 2034”
Each participant then answered a series of questions, including when the person plans to start drawing social security contributions and how much she or she expects. Those who saw one of three headlines relating to Average Social Security Trust Fund exhaustion said they plan to claim their benefits about a year earlier than the control group (age 66).
Around 20% of all respondents stated that they did not expect any benefits at all. About 34% expect full or almost full benefits, while the rest of the respondents expect their benefits to be in the middle.
Those who got the fourth headline, which found that 75% of benefits continue to be funded when and when the trust fund is depleted, were more realistic about the future of Social Security, the study found.
Earlier draws mean lower monthly payments
Why is that important? The CRR states that employees set lower monthly payments if they pursue their intention to use benefits earlier.
“These results suggest that media coverage of the trust fund makes many workers fear an unrealistically severe cut in their future social security benefits,” wrote Laura D. Quinby and Gal Wettstein of the CRR.
âAdjusting the narrative to match current income, however, may not be enough to prevent workers from filing early applications. If future beneficiaries follow up on their intention to claim a year earlier, they will retain lower monthly benefits without increasing the gap to fill the gap. “
For example, a 50-year-old who makes $ 75,000 a year would earn $ 35,229 a year by making social security claims at the age of 65, according to SmartAsset’s social security calculator.
On the other hand, it is not always a mistake to claim social security benefits earlier. Depending on a person’s financial situation, retirement income, and other factors including health and life expectancy, waiting to submit may not be an option.
For example, in the example above, the man would have to live to the age of 79 to make up for the benefits he would have received at age 65.
What does the future of social security look like?
The CRR study shows that media coverage of social security can not only inform a person’s understanding of the safety net, but also influence how and when the person would like to use their services.
While the trust fund is expected to run out in the next 12 years, that does not mean that the social security system will inevitably fail. With similar long-term funding challenges in the past, Congress has acted.
In 1975, the Trustees issued a report predicting that the Old Age and Survivors’ Trust (ASI) and Disability Insurance (DI) Trust Fund would be out of money by 1979.
As a result, Congress passed the Social Security Supplements in 1977, which raised the payroll tax from 6.45% to 7.65% and reduced benefits slightly to ensure the stability of the funds for the next 50 years.
However, short-term funding problems persisted through the 1980s, leading to further changes in 1983, including taxation of benefits and raising the retirement age.
“Alarmists who claim that social security will no longer be there when today’s young workers retire are misunderstanding or misrepresenting the predictions,” said the Center on Budget and Policy Priorities, a progressive think tank.
When planning social security, it is important to understand that the program will be funded through ongoing tax collection in addition to an existing trust fund.
The CRR study shows that media coverage of the future of the trust fund can influence when people plan to use its services. While the OASI trust fund is expected to be depleted by 2033 under current conditions, Congress has acted beforehand to ensure the future of the program when faced with similar challenges.
A financial advisor can help you plan your retirement and determine when to get social security benefits. Find an advisor now.
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