Should You Count on Social Security?”

Who knew that question would even be asked, let alone become so politically charged? The popular media today frightens people with blaring headlines that Social Security is bankrupt, and you are unlikely to receive a dime … countered by reassuring comments that the system has a multi-trillion-dollar surplus.

So – which is it? Is Social Security a pipe dream, a shell game, a bankrupt program from which you will never receive benefit? Or is it a social safety net for those whose working years are over? A recent Morningstar article tries to answer those questions, and provides insight as to whether or not you should count on it.

According to last year’s Gallup poll, 60 percent of Americans don’t expect to receive Social Security benefits once they stop working. Younger generations are even more pessimistic, with 77 percent of 18- to 34-year-olds reporting that Social Security either has “major problems” or is actually in a state of crisis. Those feelings are not unfounded. It is true that the Social Security Fund now pays out more in benefits than it takes in by taxes, and much of the fund itself consists in Treasury bonds rather than actual cash.

But maybe things aren’t quite so bad.

Many analysts, including Morningstar, insist that Social Security isn’t insolvent. But it is a very different beast to different people, depending on their age.

Without question, the value of Social Security benefits to your eventual retirement income is decreasing. Gradually increasing the age when seniors can file for full benefits – the so-called Normal Retirement Age (NRA) – essentially amounts to phased-in benefit cut of 20 percent, according to [the National Academy of Social Insurance]. Additionally, dramatic increases in healthcare costs have had and will continue to have an increasing drag on Social Security income, as Medicare Part B premiums are deducted from Social Security payments.

Social Security statistically accounts for 40 percent of an average retiree’s income, making it an important aspect of your retirement planning. According to Morningstar, the best way to combat Social Security’s falling value over time is to maximize your own monthly payouts by waiting at least until your NRA to file for benefits. Monthly benefit payments are eight percent higher for every year you wait, up until age 70. In fact, your monthly income will be about 76 percent higher than it would be if you had claimed benefits at age 62. Morningstar includes a handy chart illustrating the increases in their article online.