retirement

As a 30- or 40-Something, Can You Count on Social Security?

In all likelihood, some kind of program will probably still exist when you retire. But, if you're worried, there’s something you can do right now: Start planning as if Social Security is doomed.

Chatter about how close the trusts that fund the Social Security program are to running out of money — and whether lawmakers will step in and adjust the rules around benefits and taxes to ensure those trusts maintain their balances — is nothing new.

Worries about Social Security running out of money date back to the early 1980s (and if you dig into enough news archives, you may be able to find headlines that predate even that). Each and every time the SSA has come to the brink of running out of money, the government implemented changes to avoid that outcome.

Still, it makes sense to feel concerned about whether you will receive your own Social Security income in retirement — especially if you’re only in your 30s or 40s right now. As it stands, the full retirement age for people in those age ranges is 67. That means there’s a minimum of 22 more years to go to qualify for full benefits if you’re currently 45, and even longer if you’re younger. And that doesn’t even factor potential changes to the retirement age into the equation.

For financial planning purposes, this presents a big question mark: Can you count on Social Security?

Start by Understanding What Benefits Look Like Now

Social Security is a vital lifeline for the people it originally intended to serve: those near, at, or under the poverty line. In fact, about 4 in 10 Americans 65 or older would fall below that line without the support of the SSA.

That being said, current benefits are described as “modest” by the Center on Budget and Policy Priorities. The average benefit amount in June 2018 was $1,413 a month. That adds up to just under $17,000, which is probably just a fraction of the income you make during your working years.

This gives us an important starting point for planning purposes: No matter what Social Security looks like in the future, we know that it probably won’t be enough to cover all your living and health care expenses in retirement. Even if you could guarantee you’ll get the current level of benefits offered to eligible Americans today when you retire in the future, it probably wouldn’t be enough to meet your goals and maintain the standard of living you want.

From this perspective, whether or not Social Security will be around is a bit of a moot point for many. You need to do the bulk of the work to save and invest now while you’re working regardless; you can’t rely 100% on benefits from the government to fund your retirement. (It becomes even more of a moot point if you’re like many people in their 30s and 40s, who don’t just want to retire but have a goal of early retirement; that could further reduce your benefits anyway.)

But will you be able to count on Social Security at all, or will the program fall apart long before you can benefit from it?

Social Security Will Likely Be Around, But It Won’t Look the Same

The most accurate answer to this question is “maybe.” No one knows for sure, and it’s tough to predict a future that’s 20 or 30 (or more) years away. We can make some reasonable assumptions, though.

  • The first is that Social Security will likely exist in some form. It probably won’t dissolve and eat up all your payroll taxes that you’ve contributed into the system without providing you some kind of benefit in return.
  • The second assumption that you could reasonably make is that when it’s your turn to file for Social Security income, your benefit will likely be less than what today’s retirees receive. Because the benefit wasn’t all that significant to begin with (and again, you shouldn’t have been relying 100% on it anyway), that’s probably not as big of a deal as the media tends to make it out to be.

It also helps to remember that the main benefactors of Social Security are people 62 (the earliest age you can file) and older. And in terms of voter turnout, that’s also the group most likely to show up at the polls. In fact, 71% of Americans over 65 voted in the 2016 presidential election, compared with just 46% of 18- to 29-year-olds.

Because Social Security is a government program, politicians — who are in the business of getting elected and re-elected — are unlikely to simply scrap the program when the program’s beneficiaries are a strong voting force. That fact alone should give you some peace of mind that a benefits program for the elderly is unlikely to simply dry up and cease to exist.

If Social Security Benefits Will Make or Break Your Plan … You Need a New Plan

Just because Social Security may be reduced doesn’t mean it’s entirely unimportant. It can be a helpful benefit to ensure the success of your financial plan, and I often see the role it can play in changing the potential outcomes when trying to plan forward for clients.

When I create long-term financial plans for my 30- and 40-something clients that answer questions like “when can we retire?” and “how much do we have to save to get there?” we usually run at least two sets of projections. These baseline projections use all the same assumptions — except Social Security. With one projection, we assume the client will get 50% of their benefit. The other projection takes income from Social Security out of the picture entirely.

Just taking out the Social Security income, even though it’s not even the full benefit, can change how likely it is that a client will outlive their money. Plans can drop from a relatively good chance of success (like 70% to 80% probability of things working out) to more likely to fail than succeed (where probabilities of success are under 50%).

This isn’t a reason to panic, but it is a great reminder to plan conservatively when you do your own projections or long-term savings strategy. Your ability to fund the life you want today and tomorrow and ensure financial security for yourself should not depend on Social Security income.

Making the assumption that you won’t receive a single cent from Social Security benefits is probably unrealistic. But it also sets you up to be OK regardless of what the government does or does not do to make sure the program survives.

And to me, that’s a core tenet to financial success: focusing on what you can control. What the government, lawmakers, and politicians decide is something that is not within your direct control -- but how much you save and invest between now and retirement is something you directly choose and influence.

Instead of worrying about whether you can count on Social Security, focus on leveraging one of the biggest advantages available to you as a 30- or 40-something: time. You still have time to build your own wealth through savings and strategic investing. Don’t let the opportunity that time presents go to waste.

About the Author

Eric Roberge, Certified Financial Planner (CFP) and Investment Adviser

Founder, Beyond Your Hammock

Eric Roberge, CFP®, is the founder of Beyond Your Hammock, a financial planning firm working in Boston, Massachusetts and virtually across the country. BYH specializes in helping professionals in their 30s and 40s use their money as a tool to enjoy life today while planning responsibly for tomorrow. Eric has been named one of Investopedia's Top 100 most influential financial advisers since 2017 and is a member of Investment News' 40 Under 40 class of 2016 and Think Advisor's Luminaries class of 2021.

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