Q. I’m only 35 and I don’t think Social Security will be there when I retire. Can I get out of paying into the system?
— Enough already
A. Probably not.
Unless you are a member of the clergy or part of a very select group of state or federal workers, Social Security taxes are mandatory.
Given that Social Security is experiencing deficits that threaten its existence, it’s not unreasonable for you to think that benefits may not be there for you when you retire.
There is simply not enough money flowing into the system to cover all the benefits promised to retirees, said Lisa McKnight, a certified financial planner with Lassus Wherley in New Providence.
“At this rate, it is projected that the Social Security trust fund is fully funded until 2034,” McKnight said.
But also remember that Social Security taxes are not the only money flowing into the system.
The trust fund is invested in Treasury securities, which earn interest.
“Social Security brings in billions each year in interest income,” she said. “Additionally, if the system runs out of reserves in 2034 as forecast, then the money flowing in — taxes and income — will still be able to cover about 75 percent of scheduled benefits.”
McKnight said a complete dissolution is highly unlikely given that tax inflows and interest income into the system will sustain it for many years.
However, she said, bearing in mind the current and projected deficits of the system, changes to benefits are highly likely.
McKnight said changes will probably come from two main categories — increasing taxes or reducing benefits.
“Most likely the solution will be a combination of the two,” she said. “When Congress acts to bolster Social Security, it’s entirely possible that your Social Security taxes will increase and your full retirement age will rise.”
So should you worry that you won’t receive Social Security benefits?
McKnight said when you reach retirement age, you’ll almost will certainly get something, but it might be a slightly smaller amount than you expect based on your Social Security statement.
She said even if you received your full expected benefits, they probably will not be enough to fund your retirement,” she said.
She said the average maximum Social Security benefit at normal retirement age is a mere $2,687 a month, and the average benefit at normal retirement age is an even measlier $1,360 per month.
“These amounts may not be enough to live on comfortably,” she said.
That’s why besides paying into Social Security, it is important to set aside enough money in retirement accounts to supplement your Social Security benefits, she said.
Also keep in mind that Social Security provides many benefits beyond retirement benefits.
“Social Security is a basic insurance that all Americans have. It offers insurance and disability benefits that most people wouldn’t buy on their own unless they paid into Social Security,” she said. “This includes disability benefits in the event of a long-term disability and survivor benefits to a deceased worker’s family.”
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