Will COVID Cause Social Security to Run Out Faster? – Community News
Social Security

Will COVID Cause Social Security to Run Out Faster?

Social Security is a program that gives you the pleasure of paying for your entire working life. The prospect of this valuable stream of retirement income being gone once you leave the workforce is alarming to many Americans. As it stands, the question is not “whether Social Security will run out of money”, but when. Towards the beginning of the end of the COVID economy, you may be wondering if the Coronavirus will hasten the demise of Social Security?

According to the recent eighth annual Social Security Consumer Survey by Nationwide, a whopping 71% of Americans fear Social Security will run out of money in their lifetime. At the same time, 19% of respondents stated that the coronavirus pandemic would likely change if they chose to apply for Social Security benefits. I’m going to go out and guess that a portion of the 29% of people (apparently) who are (apparently) not concerned about Social Security running out of money fall into one or more of the following categories:

1) Have another government pension (think Congressman and Senators)

2) Are so rich it doesn’t matter (think multimillionaires and billionaires)

3) Have already started Social Security benefits.

While the boom in real estate transactions and rising stock markets have been reasons for optimism, the Coronavirus has led to a more pessimistic view on things like Social Security. According to the survey, 59% of Americans are more concerned about Social Security being out of money today than it was before the pandemic.

Interestingly, more people plan to apply for Social Security later (11%) than before (9%). If you delay claiming Social Security, you increase your monthly benefits. This delay can also help increase your financial security later in life.

Every year, the social security trustees issue a report on the expected long-term solvency of the social security program. The report is yet to be released in 2021, after the darkest days of the Covid pandemic. (I’m optimistic that at least in vaccinated parts of America — the worst days of the pandemic are behind us). As you know, the Social Security 2020 report estimated that the combined reserves of the various Social Security programs (retirement, survivor’s pension and disability) would be exhausted by 2035 unless the tax breaks are changed.

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The pandemic has been a wake-up call for many Americans to re-evaluate their finances and retirement plans, including how Social Security fits into those plans. More than two-thirds of respondents to the Nationwide survey said it’s more important than ever to optimize their Social Security benefits.

It appears that the financial advisor community is not adequately advising clients on the best strategies for claiming Social Security. As a fiduciary financial planner, I believe that Social Security counseling should be a part of any retirement plan. A majority of respondents to the Nationwide survey stated that they had not received guidance from their financial professionals. (They should be ashamed of themselves). In addition, two-thirds of respondents said they would likely switch from their current financial advisor to another financial professional who could help them make the right choices for claiming Social Security.

Can you live on social security alone?

Social Security isn’t set up to replace anything close to your pre-retirement income. It will be difficult for most Americans to live on Social Security alone. If you are incredibly frugal and have paid off your mortgage, you may be able to do it. The average Social Security check is only $1,543 a month in 2021. To be fair, a couple, each receiving this amount, could be fine in many parts of the country if they are both alive and receiving Social Security benefits as a result.

Maximum social security

The maximum Social Security check in 2021 is $3,895, assuming you claim benefits at age 70. While this equates to a reasonable retirement income, it is far from replacing the income needed to obtain the maximum Social Security benefit. You would have needed a revolving salary of about $140,000 (or more) to get the maximum Social Security benefit.

Do your finances a favor and develop a plan of when you can claim Social Security. Work with your financial advisor to determine the optimal time to claim benefits. If they can’t give you the advice you need, it may be time to upgrade to a financial planner who can help you maximize your Social Security benefits.

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Rakesh

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