When it was originally proposed, Social Security had a focused intention. During the Great Depression, many older adults lost their savings from the market crash and resulting bank runs. The Social Security Administration notes that this crisis left millions of people throughout the country in a desperate situation, facing their remaining years without any financial security. Numerous states designed their own pension plans, but the Roosevelt administration wanted to provide a program that would help Americans in need all throughout the country.
Social Security began with a limited scope of covered professions in commerce and industry. Like today, the program was financed by payroll taxes on employees who would eventually receive benefits from the system. Despite the name, Social Security was never intended to be a full replacement for all income for those who retired or found themselves in need. Instead, it was meant to remove the risk of a family becoming destitute when their primary earner retired. The monthly payments alleviated potential financial hardship but didn’t serve to replace savings and employer pension plans.
Over the years, the program expanded in scope by including other industries. It has now become a program that covers all Americans who pay into the system. The program is so broad today that the Social Security Administration requires that even self-employed workers pay into the program as long as they make at least $400 a year. And these are just some of the important basics about Social Security that are helpful to understand as you approach retirement age.
Getting the Most out of Your Social Security Payments
As mentioned, Social Security is now a program designed to benefit everyone in a similar measure. Nevertheless, there are two major factors that determine how much you receive from the program on a monthly basis: how long you wait before collecting payments and how much you’ve paid. To be eligible to receive these payments, you need to have worked and paid into the system for 10 years. As long as you’ve met this requirement, you’ll receive a payment each month once you retire past the age of 65.
Unlocking the maximum benefit amount requires some diligent work. First, you’ll need to delay collecting payments until you’re 70. You can retire before that point if it’s comfortable for you to do so — you can still begin claiming Social Security payments before reaching age 70. In addition to this delayed collection, you must also have made enough money to pay the maximum contribution for 35 years. According to Investopedia, that income level in 2023 is a minimum of $160,000 in taxable income.
How Social Security Fits Into Your Retirement Plan
Ultimately, Social Security is a program that can’t fully fund your retirement on its own. While the monthly benefits go further today than they did in the 1930s, and far more people can collect these benefits, even receiving the maximum benefits (that are in excess of $4,000 a month) may leave you looking to make up the difference. To make the most of your retirement, plan as if you wouldn’t be receiving any benefits from Social Security.
Assemble your retirement portfolio to maximize predictable, reliable revenue streams. Owning a rental property is a great way to maintain passive income while also having an asset that can be sold in a time of need. Using annuities provides guaranteed monthly income without regard to any changes the government makes to the Social Security program. Further, you can lean on the equity you already have in your home by using a reverse mortgage to withdraw some of that value on a monthly basis.
If you don’t have revenue sources that are likely to continue into your retirement aside from Social Security, you may want to lean more firmly on its monthly payments. It can be better to retain your savings and retirement assets that may account for inflation and spend the Social Security checks as you receive them to cover your monthly expenses. When managed effectively, these funds can go a long way in protecting the core of your retirement funds.
Resource Links
“Maximum Social Security Benefit: What Is It, How Is It Figured?” via Investopedia
“Fifty Years of Social Security” via the Social Security Administration
“Social Security When You Are Self-Employed” via the Social Security Administration