Income in Retirement – Social Security

Written by: Scott Sery

Social Security is a concept that sparks both hope and fear in the minds of many.  On the one hand it is great to know that after years of hard work the government, who many feel takes away too much, will be helping you through your golden years.  On the other hand, the media is plastered with news on how the program will run out of money long before many people even reach retirement age.  The question looms in a lot of people’s minds about what to expect, how to use the program, and whether or not they can even count on it anymore.

In 1935 President Roosevelt signed the Social Security Act into law.  By 1937 the government had imposed the Social Security tax, and began collecting money to pay for the new act.  The concept was simple, collect money throughout a person’s lifetime, and when they retire, the government can help to support them.  FDR saw a need.  He saw that many people would not set aside enough money for themselves for when they were older.  This was forcing too many people to work much later than they should have been.  When those who are well past their prime are still trying to do jobs, production efficiency drops.  The entire workforce is thrown out of balance, and something needed changed.  Therefore, in order to encourage people to retire sooner, and leave the jobs to the younger generation, Social Security was developed.

The program is still going today.  Contributions are taken directly from the individual’s paycheck, and half of the tax is actually paid by the employer.  It is easy to use, and most people do not even get the option of not participating.  While many argue that the program is going to run out of money, it is backed by the US government.  So as long as the government is up and running, there will be a Social Security program.  The problem comes when too many people decide to rely on it as their only means of income during retirement.

Unfortunately, the biggest “flaw” of the idea was that those who are retired now, are being supported by those who are working.  75 years ago this was not a problem because the workforce was larger than the retirement force.  As baby boomers retire, those values are switching, and there is getting less and less money coming in than going out.  As people start to retire, they make the mistake too of thinking that Social Security will cover all their needs.  In fact, the program is only designed to cover the bare essentials, or about 60% of a person’s living expenses.  To maintain a comfortable lifestyle a person will need to have other savings.

Social Security is a great resource.  It is an excellent program that is a forced savings plan for many individuals.  But it must be treated properly.  As the 2035 deadline looms, many financial professionals are encouraging their clients to plan as though the program does not exist.  That means save enough to live comfortably, and when retirement comes, Social Security is a bonus.  It can be a great boost to those retired, but should not be relied upon as the only means of income.


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Income in Retirement – Social Security

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