Will Social Security Be There When You Need It? Gen X Isn’t So Sure

On this episode of The Long View, Kerry Hannon, author of numerous books, columnist, and on air-expert for Yahoo Finance, breaks down what Gen Xers can do to improve their retirement plans, whether Social Security will last long enough for the next generation, and more lessons from her latest book she co-authored, Retirement Bites: A Gen X Guide to Securing Your Financial Future.

Here are a few highlights from Hannon’s conversation with Morningstar’s Christine Benz and Amy Arnott.

Social Security Should Be Here to Stay—But Never Say Never

Amy Arnott: We also wanted to talk a bit about Social Security and how that relates to retirement spending. You mentioned in the book that about 55% of Gen Xers aren’t convinced that Social Security will be there when they need it. Is that kind of concern overblown in your opinion?

Kerry Hannon: Oh gosh, I know Social Security is such a hot-button issue. It has been for many years now because we know that the pending time when the funds are going to be depleted and Social Security, the trustees’ report says, unless something gets done its benefits will be trimmed back to 70% to 80% of what the full benefit should be. It’s so hard to know whether Congress is going to act and what changes may come down with Social Security. But I have to say in my heart and maybe I’m just an upbeat kind of gal, but I tend to think that Social Security is going to be there.

Is there a concern? Yeah, because there are not as many younger workers coming up to pay into the system and more older individual seniors needing to tap that benefit now. So, it’s a quite clear economic challenge that the Social Security Administration is facing in terms of how these benefits are going to get paid out because of the way the system is set up. But I would find it super hard to believe that it’s going to go away. And I would love to hear what you two think about this, but it is really something that people—in fact it’s good advice maybe not to even plan for it if that’s how you want to deal with it, but I do think it will be there for people. Potentially it may be a slightly reduced benefit they may tweak when you have access to it, which is of the cut in itself, but we’ll see.

Benz: I have a financial planner friend who said that younger clients especially would often ask him to remove Social Security from his planning calculations, and then when they would see the implications for their savings rate, they’re like, OK, put it back in because they didn’t like the implications of the heroic savings that they need to do between then and retirement. But I do tend to agree with you, Kerry, in terms of the people at this life stage, they’re not that young anymore. They’re pretty close to, or getting close to, being eligible to take benefits and it seems hard to believe that the rules would change for them, but I guess never say never.

Arnott: Yeah, it seems kind of politically untenable for major changes to the benefit program, but I guess we’ll see.

Why Delaying Social Security Could Pay Off If You Can Afford It

Benz: Kerry, we wanted to ask about delaying Social Security because in financial-planning circles you hear that if you can, you should try to delay Social Security even up until age 70. Can you talk about the implications if you need to withdraw from your portfolio during that period while you’re waiting to take Social Security? How should people think about that?

Hannon: Again, this is an individual choice. It’s hard to say what’s right for everyone. But in general, if you have the ability and you have the savings—let’s start with savings outside of your retirement accounts, which many people do have built up substantial amounts or at least enough that could tie them over for as long as they can, certainly you can start your Social Security benefit at 62. But the numbers just bear out. If you can wait till age 70, that’s the biggest check you’ll get for the rest of your life, and the fact it’s with longevity—and again, that is again not across the board—people living longer lives, but it is definitely a movement up that people could have.

If you step out of the workplace at 65, or you start your benefit at 62, or you’re at your full retirement age, you could have three decades living that you need to support your living costs for and if you can get the biggest check at age 70, moving forward you’re going to really come out ahead. That really does truly depend on—and again, if you go to the Social Security website, your "my Social Security" account, they very clearly show you what your check would be based on your earnings to date, what your check would be at 62, at your full retirement age, say 67, and at age 70. And it’s a good example. They show it in a chart that makes it quite eye-popping the difference in those checks.

Yes, so the key is, if you have out savings outside of retirement account, preferably that you can start so that you don’t tap into your retirement portfolio too early. And the other thing that’s possible here is if you can shift into a second act, which we might talk about if you’re earning—if you continue to earn even if you step away from your primary employer, that can be your safety net. Those can be the funds you use for living that you don’t necessarily need to put into a retirement account and you can let that ride for a bit longer until those required minimum distributions kick in and then you have to go for it.

Why Trump’s Tax Bill Is Temporary Relief, Not a Fix to Social Security

Arnott: So, we’re taping this in early August, and the budget and spending bill was just passed a few weeks ago in July. One of the things we heard a lot of discussion about leading up to the passage of that bill was the notion that Social Security benefits wouldn’t be taxed. Can you clarify if that’s really the case?

Hannon: So, the Social Security Administration sent out emails to everyone saying promises made, promises kept. Social Security, we’ve made this so that seniors aren’t going to be taxed on their benefits. But the truth is, that’s not exactly what happened. And what happened was that the bill—which is wonderful on some levels—but what happened is that it enabled seniors to get a tax break, and it’s only temporary. The president signed into law in July that was, it’s a $6,000 boost to senior citizens, your standard deduction from 2025 to 2028, so a new temporary tax break and it’s for filers who are age 65 or older and then it phases out for those who earn over $75,000, $150,000 for couples. So, for a low-income senior, they’re not going to benefit from that. It’s sort of a benefit for upper-middle-class seniors. Sure, I mean, that’s lovely. It’s a good thing if you qualify for that to have. But it is a temporary tax deduction. It is not a Social Security tax cut. So, I think that’s where the confusion came into being, and I think we need to be clear about that.