Social Security may help millions of seniors, however, the program is far from perfect to get through your golden years!
Social Security concerns seniors. (Photo: CPA Practice Advisor)
Shortcomings of Social Security
Social Security is a source of money for millions of seniors on their retirement, while this is a good thing one cannot be sure it will be enough to cover the leisure years in later life! Here’s why.
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The monthly benefit is probably lower than your full income
Social Security may manage to replace your pre-retirement income. However, if you’re an average earner, you can only expect about 40% of your pre-retirement income.
The minimum wage in the U.S. is at least $7.25 an hour, which means if you work 40 hours a week, 52 weeks a year, you’re taking home at least $15,000 in annual income. The 40% of pre-retirement is still probably above the poverty line, however, it does not negate the fact that it is not a lot of money to live on.
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Benefits may be cut sooner than expected
40% of the pre-retirement is not something to be comfortable with. Social Security is facing a major financial crisis and is expected to deplete its trust funds in 2034.
High levels of unemployment during COVID-19 played a big part in robbing the Social Security of precious payroll tax revenue. However, it is assumed that benefit cuts aren’t set in stone, and lawmakers may manage to find a way to prevent them. But the best way to avoid getting hurt by Social Security is to boost your savings and be less reliant on those benefits down the line.
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Benefits can be taxable and you may be forced to retire before your retirement age
There are states that impose their own taxes on Social Security income. Provisional income is calculated by taking half your annual income. 50% of your Social Security may go to taxes.
According to the Employee Benefit Research Institute, 48% of workers are forced to retire early. This reason can do no good if you only bank on Social Security. Though, you’re entitled to your full monthly benefit based on your earnings, however, if you retire at the age of 60 or even earlier – what will you do then?
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Start Your Own Savings
Though Social Security is far from perfect. It still serves as a financial lifeline for many retirees in the state. Being aware of these key points can help you not to end up struggling in your later life.
This can only mean that you must save for retirement independently rather than assume that Social Security will provide all of the income you need for your leisure in your later years.
