When you think about Social Security, what comes to mind? Do you worry if it will still be around for you when you retire? Do you wonder how much you can expect to receive each month? Are you aware of when you can start taking your benefit, or what you can do to maximize it?
If you feel confused or unsure about Social Security, you’re not alone. According to Nationwide Retirement Institute’s“ 2023 Annual Consumer Survey on Social Security”:
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While reading this brochure is a good way to learn the basics, at some point you’ll want to check out the Social Security Benefits Planner (www.ssa.gov/planners) for more comprehensive information. The website has numerous links to helpful pages within the site, including calculators, publications, and life expectancy estimates.
To get warmed up, let’s check your basic knowledge of Social Security benefits by taking a quick quiz. Answers can be found at the end of this brochure, along with additional resources to gain more knowledge.
1. On average, what percentage of income does Social Security currently replace?
a) 100%
b) 70%
c) 40%
2. In 2024, the average monthly Social Security benefit was:
a) $1,461
b) $1,782
c) $2,223
d) $2,517
3. If you were born after 1959, at what age are you scheduled to receive your full Social Security benefit?
a) 62
b) 65
c) 67
4. Are Social Security benefits taxed?
a) Yes, all benefits are subject to taxation.
b) Maybe, taxation depends on your income.
c) No, Social Security is exempt from taxation
On average, future retirees believe they’re eligible for full benefits at age 63, at least three years before they actually are.
Source: Nationwide Retirement Institute’s 2022 Annual Consumer Survey on Social Security
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There are many pessimistic news stories out there about Social Security’s future. “Going Bankrupt” and “Running Out of Money” are common headlines. And, according to a 2023 TransAmerica Survey, 71% of Americans say they worry about Social Security either “a great deal” or “a fair amount.”
HERE'S WHAT'S HAPPENING
Social Security benefits are considered a “pay as you go” system. This means that Social Security taxes collected from today’s workers goes to pay today’s retirees. For many years, workers paid more in taxes than the system needed to pay retirees at the same time. More money came in than went out, and the excess started to accumulate in a trust fund that reached $2.83 trillion at the beginning of 20231.
But now, due mostly to the large number of Baby Boomers who will continue to retire over the next several years, the worker to retiree ratio has started to shift. Soon, we’ll reach a point where there is not enough money coming into the system to pay to all the people claiming benefits. To make up this shortfall, the Social Security Administration will begin pulling money from the trust fund.
The Social Security Administration projects the current trust fund balance will only last until 2035. Once it’s depleted, benefits can only be paid directly from Social Security taxes collected from the current workforce. The projections show that will only generate about 75% of what’s needed to pay all benefits2.
The Social Security Board of Trustees believes the most likely adjustments will come from a reduction in benefits or an increase in taxes (or some combination of both). But Social Security will not go away.
WHEN CAN YOU CLAIM BENEFITS?
When it’s time to begin receiving Social Security benefits, you have a range of options. You can begin receiving benefits anytime between ages 62 and 70. Your full retirement age is the age at which you can begin receiving 100% of your primary insurance amount (PIA), also known as your full retirement age benefit. Your full retirement age depends on your year of birth. For example, for those born in 1960 or later, the full retirement age is 67.
BIRTH YEAR
FULL RETIREMENT AGE
1955
1956
1957
1958
1959
1960 and later
Social Security should not be considered as your primary source of retirement income. It’s important to save as early and as much as you can in a 401(k)or IRA account to help meet all your retirement income needs.
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If you file at an age other than your full retirement age, your benefit amount will be reduced or increased. Filing earlier gives you a reduced benefit. Filing later gives you an increased benefit. For someone with a full retirement age of 67, here is what you can expect, based on the age you actually file for benefits:
SOCIAL SECURITY BENEFIT BY FILING AGE
62
70%
63
75%
64
80%
65
86%
66
93%
67
100%
68
108%
69
116%
70
124%
SHOULD YOU TAKE BENEFITS EARLIER OR LATER?
Everyone’s situation is unique, so it’s important to look closely at the trade-offs before making your decision. Here are some reasons you might want to claim benefits earlier:
HERE ARE SOME REASONS YOU MIGHT WANT TO CLAIM BENEFITS LATER:
MONEY YOU CAN COUNT ON
According to the Social Security Administration, on average, Social Security benefits will replace about 40% of your annual pre-retirement earnings. The amount of benefit income you receive may be higher or lower than average, but it’s likely that it will be your only income stream that:
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When it comes to planning ahead for Social Security, there’s a lot to know and understand. And many details are bound to change over time. Here are some tips to help you stay on top of Social Security and prepare yourself to make the best decisions for your financial future
CONTINUE TO INCREASE YOUR KNOWLEDGE
Be sure to check out these valuable resources you can access to help increase your knowledge about Social Security:
KEEP A BIG PICTURE PERSPECTIVE
According to the Social Security Administration, Social Security benefits will replace about 40% of an average employee’s pre-retirement income after retirement. This replacement percentage will be lower for people in upper income brackets and higher for people in lower income brackets. In addition, most financial advisors say that a typical person will need about 75-80% of their pre-retirement earnings to comfortably maintain their pre-retirement standard of living. That means that Social Security will provide about half of what the average person will need. How can you make up the difference?
CONSIDER WORKING WITH A FINANCIAL PROFESSIONAL
You may want to consider working with a financial professional to help you prepare to make the best decisions when it comes to Social Security. Your LPL Financial Professional can be a valuable resource for this and other financial planning issues. Here’s how they can help you:
MONEY YOU CAN COUNT ON
According to a 2023 Northwest Mutual Planning and Progress Study, 66% of Americans say they need to improve their financial planning, but only 37% seek the help of a professional financial advisor. The Poll also found that 80% of respondents who have an advisor enjoy financial certainty in terms of debt management, retirement planning, housing stability and other areas related to money. That compares to 58% of respondents who don’t work with an advisor.
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How did you do on the quiz at the beginning of this brochure? Whether or not you are surprised by any or all of the answers, your LPL financial professional can help. Don’t hesitate to contact us for guidance on planning for retirement and taking Social Security benefits!
QUIZ ANSWERS
1. c. 40 percent
Social Security is only intended to provide a portion of your retirement income. Most experts suggest you will need to replace 70 to 90 percent of your income to live comfortably in retirement. Careful retirement planning is necessary to fill in the gap not covered by Social Security.
2. b. $1,782
Social Security benefits are calculated based on your date of birth, the type of benefit you apply for, and most importantly your lifetime earnings. In addition, benefits receive a cost-of-living increase in most years, to allow for inflation. In 2024, the maximum benefit for a worker retiring at full retirement age is $3,822.
3. c. 67
Your full retirement age is when you are eligible to receive your full Social Security benefit. The year you were born determines your full retirement age. You can start taking it as early as age 62 (although your benefit will be significantly reduced) or you can delay it and wait until, say, age 70 — and get a significantly higher benefit.
4. b. Maybe
Whether or not you are taxed on your Social Security benefit depends on your income from other sources. Up to 85% of your benefit is subject to taxation, but the actual percentage taxed will vary according to your adjusted gross income.
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This material was prepared by LPL Financial, LLC.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL Financial affiliate, please note LPL Financial makes no representation with respect to such entity.
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