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Social Security and You: What Does the Future Hold?


Key Points

» A System at Risk
» How Much Will Social Security Pay?
» Sources of Retirement Income
» How Social Security Works
» Social Security Benefits for Other Family Members
» When You Retire Determines What You Get
» Changes in Your Monthly Benefits
» Bonus for Claiming Late Benefits
» Make the Most of Your Benefits
» Points to remember

On average, Social Security benefits currently represent
approximately 37% of the typical retiree’s income, according
to the Social Security Administration. For future generations of
retirees, Social Security may represent a much smaller percentage
of retirement income.

A System at Risk


When Social Security was established in 1935, the average life span
among Americans was 63. Today the average lifespan is more than 77
years, according to the National Center for Health

In 1950, 16.5 workers paid retirement benefits for each retiree. By
the year 2031, when Baby Boomers will be leaving the workforce in
large numbers, the ratio may be approaching two workers to every
one retiree. By then, the burden of taxes on each worker may well
be unmanageable. This aging of the population has led some experts
to predict that the Social Security system may run out of funds by
the year 2037, a possibility that makes building your own funds for
retirement more important than ever.

Does all of this mean you will have no Social Security to draw on
when you retire? While an exact timetable of what will happen to
Social Security is uncertain, present trends clearly indicate that
your own efforts to build financial security for your retirement
years are more crucial than ever. The time to begin planning for
retirement — no matter what your age — is now.

Even under the best scenario, the Social Security system was
created as the foundation for retirement, but it was never intended
to provide the sum total of financial security during the
retirement years. So the more you can do for yourself to save and
invest for retirement, the better off you may be.

How Much Will Social Security Pay?


The exact amount of your Social Security benefit will depend upon
your earnings history. You should receive an estimate of this
benefit your “Social Security Statement” about three months before
your birthday. You can also call the Social Security toll-free
number at (800) 772-1213 and request form SSA 7004, the
“Request for Personal Earnings and Benefit Estimate Statement.”
Complete the form and send it back. You will receive a personalized
estimate of your benefits, plus a statement showing your annual
earnings. Like reconciling your bank statement, your Social
Security summary of annual earnings should be verified against your
tax return statements, W2 forms, or your own records. If there are
any discrepancies, report them at once.

Sources of Retirement
For average current retiree:
Social Security Benefits 37%
Qualified Retirement Plans 18%
Earnings 28%
Other Assets 15%
Source: Social
Security Administration, “Fast Facts About Social Security,


How Social Security Works


Social Security contributions are paid by you and your employer.
Your contributions were deducted from your paychecks since the day
you started working and are matched by an equal amount paid by your
employer. These contributions pay for the following:

Retirement benefits Collectible at any time after age 62 and
based on the number of years you’ve been working and the
amount you’ve earned. In some cases, your children and your
spouse may also be eligible for benefits on your account.

Survivor’s benefits A kind of life insurance coverage
available to your spouse and dependents.

Disability insurance Provides a monthly income in the event
you are unable to work due to a disability. Eligibility depends on
the number of “credits” you have earned and your age.

Medicare Entitles you to medical benefits and coverage,
including hospital insurance after age 65. Bear in mind that
Medicare is also experiencing funding issues, and the Hospital
Insurance Fund could run out by 2017.

Social Security Benefits for Other Family Members


When you receive Social Security benefits, other payments may also
be made to:

  • a spouse age 62 or older;
  • a spouse under age 62 who is caring for a child under 16, or a
    disabled child who is receiving benefits from your earnings;
  • unmarried children under 18 (or under 19) if they are enrolled
    full-time in high school.


When You Retire Determines What You Get


  • Currently you can retire at normal retirement age (between age
    65 and age 67 depending on when you were born) and receive full
  • Retire between 62 and 65 and receive a reduced benefit.
  • Continue working and delay the receipt of benefits, and get a
    bonus for each year of work past normal retirement age, up to age
    70. “Delayed retirement credits” will gradually be raised to 8% by
    2008 in order to encourage later retirement.


Changes in Your Monthly Benefits


Your monthly Social Security check may change to reflect the

  • Cost-of-living increases.
  • Eligibility for disability benefits after retirement, but
    before you reach normal retirement age.
Bonus for Claiming Late
Year you reach normal retirement age Increase for each year retirement delayed
until 70
2006-2007 7.5%
2008 and after 8%

Make the Most of Your Benefits


You must apply for Social Security benefits and for Medicare
benefits. If additional insurance is being considered, remember to
apply within six months of Medicare eligibility to be accepted
without regard to preexisting conditions. When you apply,
you’ll want to:

  • Decide whether you’ll collect your own Social Security
    benefits, based on your earnings and work history, or your
    spouse’s. Presumably, you’ll want to choose the one that
    pays the most. If you retire before a spouse, you can collect your
    own benefits, then switch and choose the spousal benefits if they
    are greater.
  • Remember to apply for retirement benefits a few months before
    you want them to start. Some time is required to process all the
    paperwork, including Social Security number, proof of age, and
    evidence of recent earnings (W-2 forms from the last two years, or,
    if you’re self-employed, copies of your two most recent tax
  • Apply for Medicare before you retire.
  • Apply for any additional health insurance within six months of
    Medicare eligibility.
  • Reconcile your Social Security earnings report with your own
    records at three-year intervals. Report any discrepancies.
  • Don’t forget that Social Security checks can go to a
    former spouse to whom you were married 10 or more years — at
    62 for a divorced spouse — at 60 for a surviving divorced
    spouse — and at 50 for a disabled surviving divorced spouse.
    Children, in certain cases, may be eligible for benefits under a
    grandparent’s earnings.
  • Bear in mind that “earnings limitations” (which change each
    year) may limit the amount you may earn while still receiving
    Social Security benefits. Those limitations end when you reach
    normal retirement age.
  • Keep Social Security records up-to-date if you change your
    name, in order to have your earnings credited properly.

Regardless of your Social Security options, think of Social
Security as only a small percentage of your total retirement plan
and set aside a portion of your income on a regular basis. Saving
and investing for your own retirement nest egg is a “must.”

Points to Remember


  1. Social Security benefits will only account for a small
    percentage of your retirement income needs.
  2. For information on your benefits, call Social Security at
    (800) 772-1213.
  3. You can choose to receive full retirement benefits at normal
    retirement age or delay receiving benefits until age 70 and receive
    additional credit by doing so.
  4. Remember to apply for retirement benefits a few months before
    you want them to start. Apply for Medicare before you retire to
    maintain continuous coverage.


© 2010 Standard & Poor’s Financial Communications. All
rights reserved.