Social Security: What to know, what to expect, how to make it better

Social Security is not going anywhere, but millennials shouldn’t count on 100% of their benefits and legislators really need to pay attention to the program, experts said.

The program’s trustees said its two trust funds will be depleted in 2034, according to a June report, though that doesn’t mean Americans will stop receiving benefits. Simply put, it means the program will rely on tax income to provide its benefits as opposed to the money in those trust funds, and that benefactors will receive three-quarters of the benefits they were to be owed.

“I view Social Security as the backbone of the nation’s retirement system,” said Alicia Munnell, director of the Center for Retirement Research at Boston College. “We have known for decades that it has a shortfall over the next 75 years and that’s because it operates almost on a pay-as-you-go basis.”

What’s to come after 2034 is still unknown. Experts weighed in on the current state of Social Security, what future retirees should expect and what needs to happen to improve the program.

• The maximum taxable earnings in 2018 is $128,400 (up from $127,200 in 2017), according to the Social Security Administration

• The maximum benefit in 2018 is $2,788 a month

• More than 59 million people received Social Security in May, almost 45 million of them were 65 or older. The average monthly retirement benefit was $1,366.

• Social Security replaces about 40% of income for the average worker, said Nancy Altman, president of Social Security Works.

• Retirees today, or those retiring soon, don’t need to worry about their benefits — for the next 16 years, benefactors will get all of their benefits owed. “For people entering the planning and early retirement stages, I think they can safely assume that Social Security benefits that are now legally available to them are going to continue to be available to them,” said Philip Moeller, author of “Get What’s Yours: The Secrets to Maxing Out Your Social Security.”

Problems may arise for future retirees — those who retire in or after 2034. This group won’t be able to rely as securely on their benefits. Congress needs to step in and develop and implement changes that would create a stronger program, one that can pay out full benefits, Moeller said. The bad news: there’s nothing in the works at the moment and he doesn’t expect it to happen any time soon. “We could have fixed this 15 years ago and wouldn’t be breaking a sweat today — the longer you wait, the more substantial the changes have to be to achieve financial stability for the system.”

Americans have two avenues regarding Social Security: they can try to fix it so that benefits are maintained at 100%, or they can accept that in the future benefits will drop to 75%. To do the former, more money needs to go into the system, Munnell said.

That means the country has to consider raising the payroll tax or removing some of the cap on taxable earnings, she said, which would introduce additional funds to the program. Americans are generally accepting of increasing payroll taxes. About 70% of registered voters across both political parties opposed reducing Social Security benefits, according to a Pew Research survey, and more than 80% said that the program should be maintained, even if that means increasing the Social Security tax for working Americans. (Right now, workers and employers pay a total of 12.4% of earnings up to the cap for Social Security). “If you let regular people fix this program, you could bet it would have already been fixed,” Moeller said. “People are pretty practical.”

There are a few ways Social Security could improve, including allowing immigrants to participate and counting maternity leave and other employer benefits as part of work history, Altman said. “There are ways to share the costs in a way that most people see as fair,” she said.

None of this will happen in the short term, though, Moeller said. He receives numerous letters and emails from people who wonder if they should claim Social Security benefits as soon as they can. The short answer: Not if you don’t have to, he said. There is a huge difference between claiming benefits at 62 versus 70, Munnell said. By holding out, Americans can see a 76% higher benefit, in fact.” There’s every reason to wait if you can,” she said.