By 2031, when the youngest boomers will have reached 67, an estimated 75 million Americans will be at least 65 years old, nearly double the number in 2008, according to a report by the National Academy of Social Insurance. The beneficiary-to-worker ratio, which compares the number of people drawing benefits to the number of workers who are paying into Social Security, will rise from 35 per 100 in 2012 to 46 per 100 in 2030.
Not surprisingly, younger workers are losing confidence that Social Security benefits will be a significant help for them in retirement. Only 19 percent of people in their 20s and 26 percent in their 30s told Gallup that they expect Social Security benefits to be a major source of income in retirement.
Less than one-third of workers are counting on Social Security as a major source of retirement income.
Overall, less than one-third of workers are counting on Social Security as a major source of retirement income, according to Gallup. And 46 percent of those surveyed by Gallup said they worry "a great deal" about Social Security.
Lawmakers have proposed raising the full-retirement age, reducing benefits for wealthier retirees (known as means testing) and raising payroll taxes. But these are just proposals, and nothing has come close to becoming law. The lack of clarity makes retirement planning difficult, especially for millennials and Generation X.
"Since nobody can guess how Social Security will turn out decades from now, we use planning tools and common sense to frame the discussion with younger people," said Jim MacKay, a certified financial planner in Springfield, Missouri.
Running the retirement numbers with different scenarios can help investors prepare for the worst.
"For folks that are a long way off from Social Security retirement benefits, the primary thing that I recommend when planning is to discount the potential value of benefits by at least 25 percent to account for future possible means testing, reductions across the board in benefit levels and increased taxability of Social Security benefits," said Jim Blankenship, a certified financial planner in New Berlin, Illinois.
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The scene is set for a political fight over Social Security next year. The trust fund for Social Security's disability benefits are projected to be depleted by late 2016. After that, the SSA estimates it will only be able to pay out about 80 percent of benefits to disabled people.
The Obama administration has proposed changing the formula of how payroll tax is split between Social Security's retirement and disability trust funds to increase the money that goes to the disability fund by about $330 billion over five years. The maneuver would mean both trust funds wouldn't be projected to be depleted until 2033. Previous Democratic and Republican administrations have made similar moves 11 times to fix shortfalls between the two trust funds. The last time such a tactic was used was in 1994 by the Clinton administration.