by Damon Carr, For New Pittsburgh Courier
Great News! Effective January, 2022 Social Security Recipients will receive the largest cost of living increase it has received in nearly 40-years. The raise is a staggering 5.9 percent! This means for every $1,000 you currently receive in Social Security benefits, you’ll receive an extra $59 in your check. Since 2010, after peaking at 5.8 percent in 2009, we’ve witnessed Social Security cost of living increase anywhere from 0 – 3.6 percent. Most of those years, the increase was under 2 percent. A 5.9 percent increase is a Big Deal for Social Security Recipients.
The higher than normal raise is due to the rising cost of goods and services influenced by the supply/demand imbalance created by COVID-19, various shutdowns, and the Stimulus Checks.
Roughly half of Americans aged 65 and older relied on Social Security for 50 percent or more of their income in 2019, according to an AARP analysis of Census Bureau data. About 25 percent of seniors 65 and older relied on the benefits for 90 percent or more of their income, the analysis found.
As of August 2021, the average Social Security check is $1,437.55, according to the Social Security Administration. Social Security was never intended to be a person’s sole source of income during retirement. Retirement income sources during our Golden years originated with the premise of having a three legged stool – Social Security, Pension, and Personal Savings.
Company sponsored Pensions have become extinct. The typical person’s income is hijacked by monthly payments. As a result, most people are grossly under saving for retirement. According to a Yahoo Finance poll, 64 percent of Americans will retire broke. Yahoo Finance asked their respondents how much money they have saved for retirement. 45 percent said they had NO money saved! 19 percent said that they’ll retire with less than $10,000 to their name. Another 20 percent said that they’ll retire with anywhere between $10,000 to $100,000. That’s 84 percent of Americans planning to retire with less than $100,000 – making Social Security either the sole or primary source of retirement income for retirees of today and the future.
Let’s be honest, if $1,437.55 is our primary or sole source of income during retirement, those years will not be so Golden.
I recently posted an article on Facebook from The Wall Street Journal, entitled “Social Security Benefits to Increase 5.9 percent in 2022”. This article sparked a good conversation between myself and a good friend of mine named Eric. I share our conversation below:
Eric: People don’t realize how important retirement is until they’re within 10-years or less away. People need to start saving money at a young age and prepare for these days. Our age group can’t get full Social Security until age 70. I’ve known a lot of people to take reduced Social Security Benefits while they’re still working at age 65. I’m not working until I’m 70. It’s bad enough that most people have to work until age 65 just for healthcare. Health insurance for two people at 62 can be as high as $1,800.00 per month. There was some talk a while ago about lowering the full retirement age to age 62. That’s what I was hoping for. I have worked enough for two lives already.
Damon: You’re right! We’re getting closer to retirement age every day. You’re also right about people continuing to work later than they want to – not because of income but because of the high cost of health insurance.
You can collect full Social Security at age 67. If you wait until age 70 – you get an 8 percent increase per year each year you wait past age 67. If you take Social Security before age 67 your benefits will be reduced. If you take Social Security at age 62, you get a 30 percent permanent monthly reduction in income.
Given the fact Payroll taxes don’t cover currently paid benefits and the Social Security Trust Fund is on the brink of insolvency, if nothing is done, there’s talks of a 25 percent cut on Social Security across the board within the next 12-years.
Eric: I agree. Social Security is on the brink of insolvency. That’s why I was preparing years ago when they said it might be completely dissolved by our retirement age. It has always been stated that you better save your own money. I’m shocked that an increase will be given based on what they know about the Social Security Trust Fund possibly being depleted.
When President Bush was in office, I remember when he said something about taking money from the Social Security Trust Fund and putting it into the stock market to increase because of potential insolvency issues. That’s when I really started saving.
Damon: Social Security insolvency issues is a basic math equation and a miscalculation of life expectancy.
When Social Security was first created, actuarial projections calculated most people dying off by age 60. So they set the Full Retirement Age at 65. Modern Technology, Sciences, and Medical Advances has continued to extend life expectancy. This is the reason they increased the retirement age to 67.
It’s now projected that people in my generation will live to age 90 and even 100. Not just living – but living an active lifestyle.
Given the fact people have been living longer, Social Security is paying more out in benefits than projected. On top of that, money collected from payroll taxes only covers about 80 percent of current benefits being paid out right now. So they tap into the Social Security Trust Fund to cover the shortfall.
Now that the Trust Fund is nearly out of money 1 of 3 things has to happen to right the ship.
- Increase Payroll Taxes
- Reduce Promised Benefits
- Increase the age that you’re eligible to collect
The solution will more than likely be a combination of all 3.
It’s a political sea-saw. In order to win votes – you have to promise the public lower taxes and bigger benefits. So every political candidate tiptoes around the solution. With the Trust Fund projected to be insolvent by year 2034, the rubber will meet the road SOON!
Eric: I hope it’s not too late for some folks. I hope people get busy, work hard and save! Get your grind on. Tomorrow is not guaranteed for any of us, but we must be prepared.
(Damon Carr, Money Coach can be reached at 412-216-1013 or visit his website at www.damonmoneycoach.com)