Latest news with #SocialSecurityAdministration
CNET
40 minutes ago
- Business
- CNET
Social Security Is Set to Dry Up Even Sooner. That's Why I'm Not Relying on It for Retirement
Getty Images/Zooey Liao/CNET If you're banking on Social Security to fund your retirement, you may want to think twice. A new forecast from the Social Security Administration shows that Social Security trust funds will be depleted by 2034, a year sooner than initially forecast. At this time, you'll only be able to receive 81% of your benefits, reducing the amount you'll get paid. As a personal finance expert who saved enough to retire comfortably at 40, I've worked with dozens of clients to help them calculate how much they need to save now to afford retirement. Whether Social Security is reduced or eliminated, I can tell you with confidence that you shouldn't rely on this program to fully fund your future expenses. The monthly payments you'll receive from Social Security aren't enough to cover most of your expenses -- and these payments are only expected to decrease. Here's how Social Security benefits work and how to plan for your retirement without relying on this program's future. Read more: Social Security 2025: What Goes Into Determining Your Monthly Payment and How to Maximize It How do Social Security earnings work? Social Security is a government-run program we pay into through our payroll taxes -- employees pay 6.2%, employers pay 6.2% and self-employed individuals pay the full 12.4%. The money you pay in Social Security payroll taxes goes directly to current beneficiaries rather than into a personal savings account for you. So what you're paying now is for the generation before you and you will be paid out based on what the next generation puts into the pool of money. How much you'll receive from Social Security depends on whether you're single or married, how much you earned over your 35 highest-earning years and the age you are when you retire. Most people can start claiming benefits at 62 but the longer you wait, the more your monthly payout could be. You can use the Social Security benefits calculator to estimate what you're expected to receive. Will Social Security exist when you retire? It's still likely that Social Security will be around in some form when you retire, but you may not receive the full benefit offered to current retirees. The Social Security Administration's 2025 annual report found that the program will likely be able to pay 100% of the current benefits through 2034, a year sooner than projected last year. After that, retirees would receive 81% of their scheduled benefits. What could that look like? As of May 2025, the average Social Security payout for retirees is $1,950 per month. If you were to receive 81% of that, it would drop to approximately $1,580 per month. Is Social Security enough to fund your retirement? Most people count on Social Security to help fund their retirement savings. However, no matter how frugal you are, your Social Security payout alone is likely not enough income to cover your needs in retirement. Although $1,950 -- or $1,580 if you'll retire after 2034 -- isn't an insignificant amount, it's not enough to cover living expenses for any of my clients, and it's likely not enough for you. Social Security is a crucial part of many retirees' monthly income -- but it shouldn't be your sole retirement plan. Constance Craig-Mason of National Social Security Advisors agrees. "Financial well-being isn't just about the numbers -- it's about stability and peace of mind," she said. "Social Security should be viewed as a foundation, not the sole pillar of retirement planning." Don't rely on Social Security alone. Do this instead Rather than speculating about the fate of Social Security, I recommend putting together a plan now to start growing your own retirement fund. Even if you can't save much, starting small is better than pushing it down the road. Here are the preemptive steps I took that helped me plan for traditional retirement and let me save enough money to retire early in my 40s. 1. Review your options and set up a retirement fund Saving for retirement can feel impossible if you're living paycheck-to-paycheck and struggling to afford your rent, mortgage and other essentials. My first step doesn't require investing any money at all. Instead, I'd encourage you to review your options and get accounts set up so that you're ready to save when you're able to contribute. I also highly recommend talking to people in your life who are retired or nearing retirement age to learn how they got started. 2. Max out your employer-sponsored plan If your job offers a 401(k) or other retirement plan with a match, your best bet is contributing to that account until you reach your yearly maximum. This is your best bet, because your employer will meet part of your contributions, helping you grow your money faster. Because of retirement changes in the Secure 2.0 Act, you may even be eligible to contribute to a workplace plan if you're part-time, depending on when the plan was set up. My husband and I are focused on contributing to our sponsored plans before investing anywhere else. It's an automatic way to earn extra money for retirement without much effort. This year, you can contribute up to $23,500 to your 401(k). If you're 50 or older, you can contribute an additional $7,500. 3. Open an IRA next If you reach your 401(k) max contribution, aim to invest in an individual retirement account next. The max IRA contribution limit for 2025 is $7,000. Whether a Roth or traditional IRA makes sense depends on your estimated tax rate now and in the future. Both let you grow your money tax-free; a Roth IRA lets you contribute post-tax dollars, while a traditional IRA is funded with pretax dollars then taxed when you withdraw from it. Too many of my clients open a brokerage account instead of an IRA, not realizing they're losing their hard-earned money in taxes each year. 4. Put extra money toward your mortgage now A good way to help your Social Security income and retirement fund stretch even further is by eliminating steep expenses. Owning your home outright gets rid of one of your biggest expenses. This sounds like a lofty goal, but it's possible. I focused on paying off $300,000 of debt, including my home, in three years. If you're getting a tax refund, work bonus or other windfall, pay it toward your mortgage if you can. Every bit can bring your balance down. 5. Lower your housing expenses, if you can If you're open to relocating, consider places with lower taxes and housing costs so you can put more money toward your retirement goals. A decade ago, my husband and I made the bold move of leaving my hometown of New York City to settle in Charlotte, North Carolina, which was much more affordable. We've saved tens of thousands of dollars in taxes, car insurance and living expenses each year. Even if you're not ready to move across the country, considering lower-cost neighborhoods in your area can make a big difference. We also downsized in Charlotte and decided to rent. The money we would have put toward home repairs and upkeep has freed up extra money for us. 6. Take advantage of health savings accounts Health care is one of the biggest expenses in retirement. So investing in your health now can save money later. Get in the habit of filling up tax-advantaged accounts such as a flexible spending account or health savings account to help you save money on your health expenses. Keep in mind that an FSA account is offered through your employer but you can set up an HSA yourself. These accounts can incentivize you to use those funds toward the health care resources you need to keep healthy habits in the long run as you won't pay as much out of pocket for health care purchases, check-ups and procedures. Then you can use your take-home pay to focus on your retirement plan. Focus on what's in your control We can't predict exactly what will happen with Social Security but we can take action now to reduce financial anxiety about the future. As Craig-Mason encourages, "When you combine Social Security benefits with smart saving strategies, intentional money management and a focus on aligning finances with your well-being, you're building a retirement plan that's sustainable and fulfilling -- no matter what uncertainties lie ahead." The worst thing you can do? Assume Social Security will cover everything. Instead, start planning today.
Yahoo
an hour ago
- Business
- Yahoo
Here's What the Average Social Security Payment Will Be This Summer
The average monthly Social Security benefit for retired workers topped $2,000 for the first time in the agency's nine-decade history. Find Out: Read Next: While Social Security remains a vital income stream for millions of Americans, inflation, cost-of-living adjustments and rising healthcare costs could erode the purchasing power for older adults who rely on Social Security alone. Here's what beneficiaries need to know about their payments this season to make the most out of every dollar. According to the latest data from the Social Security Administration, as of summer 2025, the average monthly Social Security benefit for retired workers is $2,002.39. This marks an increase from roughly $1,917 a year ago, reflecting the 2.5% cost-of-living adjustment (COLA) that took effect in January. 'While those numbers may not seem like a huge jump, every dollar counts when you're on a fixed income,' said Oscar Skjaerpe, certified financial planner (CFP) at ProVise Management Group. 'It's a reminder that even modest COLAs can add up over time, but they still need to be part of a bigger plan.' Be Aware: Cost-of-living adjustments (COLAs) are designed to help Social Security payments keep pace with inflation. While the 2025 COLA of 2.5% has kept pace with average inflation so far, retirement experts said it still falls short of covering rising expenses, such as healthcare and insurance. 'The average COLA for Social Security over the last 30 years was about 3.2%.,' said Krisstin Petersmarck, National Social Security Advisor (NSSA) and investment advisor representative at New Horizon Retirement Solutions. Petersmarck said that while COLA is designed to help benefits keep pace with inflation, other factors, like rising Medicare Part B premiums, may strain household budgets. 'In 2025, the COLA increase was 2.5% and the average inflation rate so far is between 2.4% and 2.8%,' Petersmarck said. 'So, the COLA increase based on stats has been keeping pace. However, the opinion of most people receiving Social Security benefits is that it is not keeping pace.' Even with the 2.5% COLA increase, factors like Medicare premiums, taxes and income brackets can reduce the actual amount retirees receive. 'The main driver of this year's benefit increase is the 2.5% COLA,' said Jim Davis, CFP and senior wealth advisor with Aspen Wealth Management. 'But rising Medicare Part B premiums and potential tax implications can quickly erode those gains.' Most retirees have their Medicare Part B premiums automatically deducted from their monthly Social Security payments. When these premiums increase, as they often do year over year, they can offset any cost-of-living adjustment and shrink the net amount that actually lands in a retiree's bank account. 'For high-net-worth retirees, a larger portion of Social Security benefits may be taxable and higher Medicare premiums (IRMAA surcharges) can further reduce net payments,' Davis said. 'It's a reminder that even 'guaranteed' income streams come with moving parts, especially for those with more complex financial pictures.' While the average Social Security benefit for retired workers has risen to just over $2,000 a month in 2025, many retirees could find that it doesn't stretch as far as expected. 'Social Security was designed to be a safety net, not a hammock. Many retirees think they can count on it as their primary income source when it's really meant to support and not represent the majority of a broader retirement income plan,' said Shane O'Hara, CFP and certified private wealth advisor (CPWA) at ProVise Management Group. 'With inflation still higher than the Fed's goal of 2% annually and Medicare premiums often increasing faster than the cost-of-living adjustments (COLAs), retirees should be cautious about assuming their Social Security benefit will stretch as far as it did for their parents,' O'Hara added. Experts recommended viewing Social Security as a stable foundation, not the whole strategy. 'In the world of hiking and dressing properly to reach the mountain's summit, you can think of Social Security like your base layer: dependable, but not the whole outfit,' O'Hara explained. 'You need to layer on income from savings, investments and potentially a pension to weather the rising cost of living, unexpected expenses or even a surprise travel opportunity because retirement should include some fun too.' More From GOBankingRates 25 Places To Buy a Home If You Want It To Gain Value This article originally appeared on Here's What the Average Social Security Payment Will Be This Summer Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
USA Today
3 hours ago
- Business
- USA Today
Could you invest your own FICA taxes? The new Social Security proposal explained
As Elon Musk took a figurative chainsaw to the Social Security Administration earlier this year, there were those, like U.S. Rep. John B. Larson (D-Connecticut), who suspect the move had a lot to do with a desire to privatize Social Security. Social Security privatization refers to transforming the current Social Security system, primarily a government-run program, into a system that allows Americans to invest their Social Security contributions into private accounts rather than paying into the federal program. The challenge If you've ever looked at a paycheck and wondered what FICA stands for, it's the Federal Insurance Contributions Act. Of your gross wages, 6.2% goes into FICA to pay for Social Security and another 1.45% goes toward covering Medicare. Your employer matches both amounts, resulting in a total contribution of 15.3% of your wages. Contributions made today support benefits for retirees, people with disabilities, and survivors of workers who have died. Think of it as today's employees helping fund the benefits of today's retirees. Since Social Security was first established in 1935, the understanding has been that each generation of retirees will be supported by younger workers still on the job. A perfect storm of demographic changes in the United States put the Social Security system in a vulnerable position. Between the declining fertility rate and increased life expectancies, there are fewer workers to support an ever-growing group of retirees. As of this year, 12% of the total population is 65 or older. By 2080, it will be 23%. In other words, the worker-to-beneficiary ratio is expected to drop dramatically, potentially impacting the SSA's ability to fulfill promised benefit payments. A move away from FICA? Among the proposals being made is the suggestion that Americans retain the 6.2% of their wages currently allocated toward FICA. Instead, they can invest it in private investment vehicles and decide how the money should be allocated. Supporters of Social Security privatization argue that the change would give individuals greater control over their retirement savings and potentially allow them to earn returns higher than those provided by the current system's fixed benefits. They also see it as a way to reduce the financial burden on the federal government. On the other side are those who worry that some Americans may not have the financial literacy or resources to manage investments on their own. Not everyone has experience managing assets, and it's concerning to think about throwing millions of people into the investment pool who may never have learned to manage their finances effectively. Another concern involves what happens to those who spend years investing for retirement only to hit a string of bad luck. That may mean making bad investment choices or even facing losses due to uncontrollable setbacks, like a recession or bear market. Opponents worry about what will happen to those who hit retirement age with little money put away through no fault of their own, and point out that the current Social Security system offers fixed benefits that retirees can count on. Countless issues to work through Even if Congress were able to come to a consensus and privatize Social Security, there are thorny issues that would need to be managed. For example: Partial privatization? Some supporters of Social Security privatization suggest allowing workers to invest a portion of their current Social Security contributions in private accounts, with the remainder allocated to the traditional pay-as-you-go system. While this model would lower the Social Security benefits earned by workers who choose this path, they would have a safety net of some sort to look forward to in retirement. Given how difficult it can be to get Congress to agree on anything, there's no doubt that deciding to upend the entire Social Security system will be an uphill (and long-fought) battle. In the meantime, the more immediate goal is to find a way to shore up the current system so that retirees will receive every dollar they've been promised. The Motley Fool has a disclosure policy. The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY. The $23,760 Social Security bonus most retirees completely overlook Offer from the Motley Fool: If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets"could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. JoinStock Advisorto learn more about these strategies. View the "Social Security secrets" »
Forbes
4 hours ago
- Business
- Forbes
Social Security's Annual Earnings Limitation Made Simple
I'll admit, this topic can be confusing. First, let's start with Social Security's definition of full retirement age. Depending on your birth year, full retirement age ranges from age 66 to 67. For our purpose, we will assume a full retirement age of 67. What's important about your full retirement age? The annual earnings limitation only applies if you file for Social Security benefits before you reach your full retirement age. For most people, the earliest you can apply for Social Security retirement benefits is age 62. Therefore, the annual earnings limitation is effective for ages between 62 to 67. At your full retirement age, the annual earnings limitation goes away. Why is that? Social Security considers you fully retired at your 'full retirement age.' Therefore, at your full retirement age, you can make any amount of income, and you will not be subjected to the earnings limitation. If you file for benefits early, between the ages of 62 to 67, you are basically saying to Social Security that you are considering yourself fully retired. Since Social Security does not consider you fully retired because you have not reached your full retirement age, you are allowed to earn wages and/or self-employment income in 2025 up to the amount of $23,400 without being subjected to the annual earnings limitation. If you exceed this amount, you are not considered fully retired and Social Security will apply the annual earnings limitation calculation. The limitation is based on W-2 income and self-employment income only. Any other type of income such as interest, dividends, capital gains, rental income, IRA/401K distributions, etc., is not considered income. The reason it's called the annual earnings limitation is because it is based on the calendar year. If you exceed $23,400 in a calendar year, Social Security will withhold $1 for every $2 you are over the limit. For example, if you made $43,400, you would be $20,000 over the limit, and since it's $1 for $2 ratio, Social Security would withhold $10,000. If you were receiving a monthly benefit that was $1,750, Social Security would withhold 6 months payments since they cannot withhold partial amounts. In the year you reach your full retirement age, in 2025, the limitation is increased from $23,400 to $62,160, and instead of a $1 for $2 ratio, it's a $1 to $3 ratio, meaning for every $3 over $62,160, Social Security will withhold $1. What happens in our situation above where the person retires on June 30? The annual earnings limitation only comes into play when you start collecting Social Security benefits before your full retirement age. So, for example, if you retire at age 65 and that happens to be on June 30, Social Security is not concerned with what you earned prior to July 1. The annual earnings limitation is only applied to earnings after June 30 to your full retirement age of 67. There is a special rule that in the year of retirement, and only in that first year, you can use what's called the monthly limitation, if this is beneficial to you. Remember, we determined that Social Security is not concerned with earnings prior to collecting benefits, so in this situation, earnings from January to June are not considered, only earnings from July to December are what Social Security is concerned about. Instead of using the annual limitation, you can use the monthly limitation in the retirement year only. As long as you do not exceed monthly earnings in excess of $1,950 a month ($23,400/12), the earnings limitation does not apply. If you go over the limitation in any month, the limitation only applies to that month. In the following year, you are then subject to the annual earnings limitation. This exception is generally used by mid-year retirees. What happens if you get paid a bonus, vacation/sick pay, severance pay, back pay etc., in a month after you retire and start collecting benefits? Social Security refers to this as 'Special Payments,' and as long as these earnings were completed before you stopped working, but paid after your retirement date, they do not count towards the limitation. You may have to explain this to Social Security in the future as they are provided with information from the IRS based on your tax return which is annual. What happens if after you start collecting Social Security benefits before your full retirements age you go back to work or know you will be making significantly more than the limitation of $23,400 allows? Obviously, life happens, so you may start to collect Social Security benefits before you reach your full retirement age thinking you are fully retired, and an excellent job offer comes along. Or you get bored and go back to work. You should contact Social Security and let them know you will exceed the annual earnings limitation. They will begin to withhold benefits. You do not want to be in a situation where your Social Security benefits are overpaid because Social Security did not know you are exceeding the annual limit. If this happens, you will need to pay back all of the overpayment in full. The Social Security Administration just issued a new directive on 3/7/2025 to reinstate the overpayment recovery rate to 100% starting on 3/27/2025. This means that if you are overpaid, Social Security will withhold your whole benefit check until the overpayment is recovered. This new directive is only for overpayments received after 3/27/2025. If you already have an overpayment recovery agreement prior to 3/27/2025, that will not be amended. See link for more information: Social Security to Reinstate Overpayment Recovery Rate | SSA Will I lose those benefits because I am subjected to the earnings limitation? No! You will never lose your benefit assuming you live to life expectancy. Many people think that if you exceed the earnings limit you lose your Social Security benefit, and that's not true. You never lose your benefit, it's when they are paid. Social Security uses what's called the adjusted reduction factor to recalculate your benefits when they start again. That's why the term 'withheld' is used. If you are subjected to the earnings limitation, this will ultimately result in a higher monthly benefit payment when payments start again or at the latest when you reach your full retirement age when the earnings limitation does not apply any more. Remember, take the wrong benefit at the wrong time, it's always smaller and forever.
Yahoo
7 hours ago
- Business
- Yahoo
11 States That Dominate Social Security Benefits
You've probably heard of the Million Miler Club for airline travel. Meet the Million Household Club for Social Security. Check Out: Learn More: Eleven states have more than a million households receiving Social Security benefits, according to the latest data from the Social Security Administration. Those 11 states account for 57% of all of the households receiving Social Security benefits in the nation. While overall population certainly factors into these rankings, the list of most populous states isn't an exact match with the list of states with the most households receiving benefits. That's because the percentages of households receiving benefits vary widely from state to state. For example, the state with the largest number of households receiving help — California — actually has the fourth-lowest percentage of households receiving help (28.1%). Smaller West Virginia has by far the highest percentage of households receiving Social Security (41.2%). But that amounts to only about 300,000 households, only the 35th highest total among the 50 states. Here's a countdown of the Million Household Club, from the least amount of Social Security households to the most. We've also included each state's percentage of households receiving benefits, the average amount received and the annual cost of living. Also see the states that need Social Security the most. Number of households with Social Security income: 3,779,490 % of households with Social Security income: 28.1% Average Social Security income (annual): $23,022 Annual cost of living: $85,413 California's roughly 3.8 million households receiving benefits is more than 600,000 higher than the next highest state, Florida. The Golden State's average single-family home value ($809,893) is second only to Hawaii ($985,731) among the 50 states. Find Out: Also See: Number of households with Social Security income: 3,139,979 % of households with Social Security income: 36.7% Average Social Security income (annual): $24,048 Annual cost of living: $52,244 Known for its large numbers of retirees, Florida is actually second in the nation for percentage of residents age 65 and up. The Sunshine State's figure of 21.1% trails Maine (21.9%). Of Florida's 65+ population, 11.4% live below the poverty line. Florida also has the highest percentage of residents receiving benefits in this list (36.7%). See More: Number of households with Social Security income: 1,170,920 % of households with Social Security income: 29.2% Average Social Security income (annual): $22,934 Annual cost of living: $46,146 Less than 15% of Georgia residents are age 65 or older — the fourth-lowest total in the nation. The Peach State ranks in the middle of the pack for annual median household income (25th, $75,000) and average single-family home value (27th, $331,000). Number of households with Social Security income: 1,453,430 % of households with Social Security income: 29.1% Average Social Security income (annual): $23,429 Annual cost of living: $42,795 The Prairie State has the seventh-highest number of households receiving Social Security benefits. Nearly 10% of Illinois residents age 65 and up live below the poverty line. Number of households with Social Security income: 1,402,046 % of households with Social Security income: 34.7% Average Social Security income (annual): $24,503 Annual cost of living: $39,532 The nation's 10th-most populous state, Michigan ranks 12th lowest in annual cost of living. It ranks 15th in percentage of households receiving Social Security benefits (34.7%). Also Explore: Number of households with Social Security income: 1,085,771 % of households with Social Security income: 31.2% Average Social Security income (annual): $25,318 Annual cost of living: $64,532 New Jersey has the third-highest household median income in the nation ($101,050). Its annual cost-of-living ($64,532) is the country's fifth-highest. About 10% of the state's residents age 65 and older live below the poverty line. Number of households with Social Security income: 2,445,342 % of households with Social Security income: 31.9% Average Social Security income (annual): $23,330 Annual cost of living: $57,166 New York's average annual cost of living (about $57,000) is only the 13th highest in the nation. It depends on which part of the state you live in, of course, with average living costs in Upstate New York only a small fraction of costs in New York City. Number of households with Social Security income: 1,343,673 % of households with Social Security income: 32.1% Average Social Security income (annual): $23,610 Annual cost of living: $46,728 Roughly 17% of North Carolina's 10.6 million residents are age 65 or older. Of that group, a little more than 10 percent live below the poverty line. North Carolina ranks 37th in the country for annual household median income ($70,000). Find More: Number of households with Social Security income: 1,538,984 % of households with Social Security income: 31.9% Average Social Security income (annual): $22,438 Annual cost of living: $39,178 Ohio offers the 10th lowest average annual cost of living in the United States ($39,178). The Buckeye State is middle-of-the-pack when it comes to percentage of residents age 65 and up beneath the poverty line — its figure of 9.5% ranks 24th. Number of households with Social Security income: 1,829,023 % of households with Social Security income: 34.9% Average Social Security income (annual): $23,989 Annual cost of living: $42,196 The Keystone State has the ninth-highest percentage of residents age 65 and up (19.1%). About 9% of those residents find themselves below the poverty line. Number of households with Social Security income: 2,720,364 % of households with Social Security income: 25.3% Average Social Security income (annual): $22,536 Annual cost of living: $43,956 Texas has the fifth-highest percentage of 65-and-up residents living below the poverty line in the nation (11.7%). The Lone Star State's 3.9 million residents age 65+ is third in the U.S., trailing only California and Florida. Methodology: For this study, GOBanking Rates identified each state's total population, population age 65 and over, total households, household median income, households that receive Social Security income, the average Income for households that receive Social Security income, and the percentage of people aged 65 and over who are below the poverty line (all sourced from the U.S. Census 2023 5-year American Community Survey). Cost-of-living indexes were sourced from Sperling's BestPlaces. Using average expenditures for people age 65 and over as sourced from the Bureau of Labor Statistics Consumer Expenditure Survey, the average expenditure cost was calculated. The average single-family home value was sourced from the Zillow Home Value Index. By assuming a 10% down payment and using the national average 30-year fixed mortgage rate as sourced from the Federal Reserve Economic Data, the average mortgage cost was calculated. Using the average mortgage and average expenditure costs, the average total monthly and annual cost of living was calculated. All data was collected on and is up to date as of May 15, 2025. More From GOBankingRates The 5 Car Brands Named the Least Reliable of 2025 This article originally appeared on 11 States That Dominate Social Security Benefits Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
