Planning a financial strategy for retirement is understandably an emotive topic.

It’s a difficult prospect to consider, the chance that poor planning or bad decision making could turn your golden years into a financial struggle.

Emotive subjects are a beacon for media outlets and the stability of the Social Security system and how it might impact your retirement is always going to be big news.

Panic inducing articles about the demise of social security and how the program is set to run out of money are nothing new, but it is important to understand the wider context and system that these articles are set within before making any financial decisions and one of the most important will be deciding when you should start collecting benefits.

I’m going to give you some background to the Social Security program, detail the drawbacks and benefits of claiming at different ages, dispel some of the myths and explain why these doomsday articles should not be playing a part in your decision making.

The history of Social Security

Social Security began its life in 1935. As part of President Roosevelt’s New Deal, the Social Security Act was a way to combat the unprecedented rise in poverty and unemployment during the Great Depression.

The need for the Social Security Act was a reflection on the changing face of America.

A flourishing job market and the rapid expansion of industry encouraged millions of Americans to flock to cities for higher pay and increased opportunities. This took people away from their rural communities and extended families leaving them without the support networks that had been in place for decades.

At the same time, life expectancy was increasing across the US.

When the Great Depression hit, Americans faced a perfect storm of mass unemployment, a population with a far smaller support network and a rise in the number of senior citizens.

Prior to the enactment of the Social Security Act, elder assistance in the US can only be described as patchwork at best.

Underfunded, sporadic and ignored by government, for the lucky few senior citizens who managed to secure assistance, it generally paid out around 60 cents per day.

In the year that FDR signed the Social Security Act, over 50% of US senior citizens were living below the poverty line.

In 1937, 53,236 beneficiaries received $1.27 million (adjusting for inflation, that’s just over $24 million)

By the following year, 1938, it had jumped to 213,670 beneficiaries receiving $10,478,000 (just under $200 million in 2021 money)

Fast forward to 2021 and Social Security now pays out over 1 trillion dollars in benefits to 64 million US residents.

Over the Act’s 86-year history, amendments have changed how the Social Security system operates and to help expand the reach and benefits delivered by the program.

Headlines Vs Reality

From CNN to the New York Times, thousands of column inches have been generated all telling the same story; Social Security is running out of money. The truth, however, isn’t nearly as alarming.

Unfortunately, in the race for your attention and to secure views and clicks, most of the major publications will always opt for the sensational, headline-grabbing, doomsday scenario articles instead of a measured, fact-driven story.

For decades, Social Security has collected more than it has paid out. At the end of 2020, that surplus fund stood at $2.9 trillion.

The issue is that the retiree population is growing faster than the working population and we are all living longer.

Without any intervention, the Social Security trust fund was due to run out of surplus in 2035, however the financial implications and increase in retirements due to the Covid pandemic have brought the predicted date forward by a year to 2034, giving news editors another opportunity to sound the alarm.

There are a few things that are incredibly important to note to give full context here.

Firstly, working off official estimates, Social Security will still be able to pay out 78 percent of scheduled and projected benefits once the surplus has run out just through receiving tax revenue. A long way from going broke as many headlines claim.

Secondly, these are only estimated figures and don’t consider the growing number of people who work well past retirement date – a not insignificant number.

Finally, and most importantly, you will notice that I stated that this would only happen without intervention, a subtlety purposely missing from the doomsday articles.

In fact, there are several, relatively easy actions the government could take to mitigate against the current population imbalance.

For example, simply by increasing the full retirement age by one year from 67 to 68, it would add an additional 75-years to the current system. Alternatively, increasing the income level that is subject to Social Security taxes, currently set at around $137,000 could provide a solution. Even a modest rise in payroll tax could fund Social Security into the next century.

Like all political problems, there will undoubtedly be a lot of back and forth and procrastination before a deal is settled on to fix the system, but one thing that you can be certain of is that it will be fixed.

In 2020, 17% of the US population was over 65. By 2060 it will have risen to 24% – that’s a lot of political capital to waste on playing politics.

When should I start collecting Social Security?

I hope that I’ve helped to remove the Social Security bankruptcy equation out of your decision making.

Obviously, there’s no one-size-fits-all answer when it comes to financial planning, your personal situation will dictate when you should claim, however, the longer you can leave it, the better.

If you were born after 1960 and start collecting at 62, you will receive only 70% of what you are entitled to – that’s a big reduction.

On the other hand, every year past retirement age that you wait to claim Social Security earns you a delayed retirement credit (DRC) which gives you an 8% yearly bonus up until you are 70.

Rather than claiming Social Security early and reducing a reliable, steady income throughout retirement, most retirees would benefit from using their savings to delay claiming.

With cost-of-living adjustment and a lifetime guarantee, for most people it makes far greater financial sense to maximize their benefits.

Approaching retirement can be a daunting prospect.

Taking advantage of Social Security and ensuring that your assets are positioned strategically to support the retirement that you want are just some of the steps that Beyond Financial Planning can assist with.

Our priority is to fully understand your individual circumstances so that we can build the strategies that ensure you make the financial decisions that support your retirement plans and that are right for you and your family.

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