Editor’s Note: This article first appeared on SmartAsset.com
Last month, the Social Security Board of Trustees announced that the trust fund that pays out benefits will run out of money by 2033, causing some retirees to be concerned that their monthly benefits will run out before they die.
However, a study conducted by Boston College’s Center for Retirement Research shows why it’s critical to read beyond the headlines and understand how Social Security is funded.
Some workers may misinterpret the news, claiming benefits early and forfeiting larger payments later.
How Does Media Coverage Affect Your Plans?
More than 3100 people completed an online survey administered by Boston College’s Center for Retirement Research (CRR) after reading a news article about Social Security’s long-term funding challenges.
The article was based on the 2021 Social Security Trustees Report, which predicted that the trust fund would be depleted by 2034, with ongoing payroll taxes covering roughly 75% of benefits.In their 2021 report, the trustees revised that projection, stating that the trust fund will run out of money by 2033.
Everyone in the study was given the same article to read, but with four different headlines to choose from.A control group was given a headline that simply said, “Social Security Faces a Long-Term Financing Shortfall.”The three other headlines all specifically mentioned the trust fund’s eventual depletion.
- The Social Security Trust Fund will be depleted by 2034.
- The Social Security Fund is on the verge of going bankrupt in 2034, according to trustees.
- After 2034, revenues are expected to cover only 75% of scheduled Social Security benefits.
Following that, each participant was asked a series of questions, including when they planned to begin collecting Social Security and how much they expected to receive.On average, those who saw one of three headlines about the Social Security trust fund depletion said they plan to claim benefits one year earlier than the control group (age 66).
Meanwhile, approximately 20% of all respondents stated that they do not expect to receive any benefits.34% of respondents anticipate receiving full or nearly full benefits, while the remaining 34% anticipate benefits that are somewhere in the middle.
The study found that those who read the fourth headline, which stated that 75% of benefits will still be paid if and when the trust fund runs out, were more realistic about the future of Social Security.
Lower Monthly Payments If You File Your Claim Early
Why does this matter? According to the CRR, if workers follow through on their plans to file for benefits sooner, they will be able to lock in lower monthly payments.
These findings suggest that media coverage of the trust fund causes many workers to fear a disproportionately large reduction in their future Social Security benefits, according to CRRs Laura D.Quinby and Gal Wettstein collaborated on the book.
Adjusting the narrative to include ongoing revenue, on the other hand, might not be enough to keep workers from filing early claims.Future beneficiaries who follow through on their plan to claim a year earlier will lock in lower monthly benefits without having to increase their savings to cover the difference.
For example, if a 50-year-old earns $75,000 per year and files for Social Security at age 65, he will receive $35229 per year.According to the SmartAssets Social Security Calculator, if he delays Social Security for one year and begins collecting at age 66, he will receive an additional $2747 per year.
However, filing for Social Security benefits early isn’t always a bad idea.Depending on a person’s financial situation, retirement income, and other factors such as health and life expectancy, waiting to file may not be an option.
To make up for the benefits he would have received at age 65, the man in the example above would have to live until he was 79 years old.
What Does Social Security’s Future Hold?
According to the CRR study, media coverage of Social Security can influence not only a person’s understanding of the safety net, but also how and when they plan to claim their benefits.
While the Social Security trust fund is expected to run out in the next 12 years, that does not mean the system will collapse.In the past, when faced with similar long-term funding challenges, Congress has acted.
The trustees predicted that the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds would run out of money by 1979 in a report released in 1975.
As a result, in 1977, Congress passed the Social Security Amendments, which increased the payroll tax from 6% to 10%.75% to 45%To ensure the funds’ stability for the next 50 years, benefits will be cut by 65% and benefits will be slightly reduced.
However, in the 1980s, short-term funding issues persisted, prompting more amendments in 1983, including the taxation of benefits and an increase in the retirement age.
According to the Center on Budget and Policy Priorities, a progressive think tank, alarmists who claim that Social Security won’t be around when today’s young workers retire either misunderstand or misrepresent the projections.
Shutterstock / Syda Productions
When it comes to Social Security, it’s important to remember that the program is supported by ongoing tax collections as well as a trust fund.
According to the CRR study, media coverage of the trust fund’s future can influence when people plan to begin claiming benefits.Despite the fact that the OASI Trust Fund is expected to be depleted by 2033 under current conditions, Congress has acted to ensure the program’s future when faced with similar challenges in the past.
A financial advisor can assist you in making retirement plans and determining when to begin collecting Social Security benefits.Now is the time to find an advisor.
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