Three Part Series On Social Security: Part One

This is the first in a three-part series on Social Security. Look for part two on spousal benefits in the July Retirement Report and part three on how working impacts your benefit in the August Retirement Report. This Retirement Report tackles the state of Social Security.

The biggest story in Social Security today concerns the large number of baby boomers set to retire over the next decade and the relatively smaller younger generations feeding Social Security payroll taxes into the system. Adding additional stress to the system is the reality that, on average, today’s retirees are living longer than any previous generation. While that’s good news, it presents challenges to the Social Security system and in other areas as well. Living longer increases the potential for increased medical and long-term care expenses while in retirement. This may be particularly true for those who have been active all their lives and had relatively few medical expenses prior to retirement.

Social Security benefits are largely funded by today’s workers via payroll taxes. In 2021, the Old-Age and Survivors Insurance and Disability Insurance Trust Funds collected $1.1 trillion in revenues from the following sources:In 2021, the average monthly Social Security benefit received by retired women was $1,484, compared to $1,838 for men.

  • 90.1% from payroll taxes and reimbursements from the General Fund of the Treasury
  • 3.5% from income taxes on Social Security benefits
  •  6.4% from interest earned on the government bonds held by the trust funds

The number of retired workers is projected to double in 50 years. Adding to the Social Security funding dilemma, people are also living longer, and the national birth rate is low. As a result, the ratio of workers paying Social Security taxes to people collecting benefits is projected to fall from 2.8 to 1 in 2021 to 2.3 to 1 in 2038.2 The Social Security board of trustees reports the combined asset reserves of Social Security Trust Funds will deplete in 2035. At that point, payroll taxes and other income will be sufficient to pay only 80% of program costs. While drastic benefit cuts seem unlikely for baby boomers, lawmakers will have to make changes that could impact how the program looks for future generations.


Full retirement age (FRA) is 66 for anyone born between 1943 and 1954. Beginning with those born in 1955, an additional two months is added to the full retirement age each year through 1959.

If you were born in 1960 or later, FRA is 67. You may begin taking benefits starting at age 62, but they will be permanently reduced.

Covered workers need 40 credits to be eligible for their own benefit, which works out to about ten years of work history. Your benefit is calculated based on your average earnings over the highest-earning 35 years.g to the potential for volatility.

Working up to full retirement age may increase your benefit while at the same time, any contributions you continue to make to a 401(k) plan and/or investment portfolio will have more time to potentially accrue higher gains.

Some other interesting facts about the state of Social Security:

  • In 2022, the maximum monthly benefit for a worker retiring at FRA was $3,345 per month.
  • In 2021, the average monthly Social Security benefit received by retired women was $1,484, compared to $1,838 for men.
  • No matter what age you begin receiving Social Security benefits, your payout will receive an automatic annual cost of living adjustment when there is a comparative increase in the consumer price index.

The simple fact is that Social Security may not always be straightforward. Just like every other facet of retirement income planning, there are strategies you can employ to maximize the benefits you are eligible to receive.

Many people are hesitant to delay receiving benefits because they don’t want to lose money they’ve contributed to the system for the past 35-plus years. While people who apply for Social Security benefits early may get more dollars if they die soon after, the opposite may also be true — they may receive less if they live significantly longer.

The monthly benefit paid out at age 62 is actuarially reduced to account for the eight more years that the recipient will be paid benefits as compared to someone who begins drawing payouts at age 70. Waiting to claim benefits until age 70 will increase your benefits for each year you delayed claiming benefits. The percentage of increase will vary depending on the year you were born. Those born in 1943 or later will see an 8% increase in benefits each year they delay taking benefits, up to age 70.

What’s most important is making Social Security decisions based on your retirement vision and your specific situation. The question isn’t how to beat the system, but rather how to maximize the amount of income you receive for the length of time that you need it.

Sources:  Center on Budget and Policy Priorities and

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