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Save to Save Social Security

Meridian Points

Social Security is a major concern for millions of Americans. About 10,000 people reach retirement age daily, and 61% of seniors rely on Social Security for at least half of their income in retirement. Although Social Security isn’t insolvent at this moment, the system is projected to run out of reserves by 2034. Even if the program does run out of reserves altogether, incoming payroll taxes would still cover almost 75% of benefits.

President Trump has pledged not to reduce Social Security benefits. Trump and many others believe that creating economic growth will take care of the funding problem. A rapid economic “growth spurt” would certainly help; more jobs and higher wages would pump more payroll tax revenue into the system. However, it doesn’t take much common sense to realize the country needs to do more to sustainably fix Social Security.

One way to make Social Security more solvent is to delay paying out benefits. Congress figured this out some time ago. For the first time in over a decade, the retirement age for claiming full Social Security benefits is rising this year. Full retirement age, or “FRA,” has long been a moving target as part of a multi-decade, phased increase from the original age 65. In the past decade retirees were all faced with an FRA of 66, but those turning 62 this year must wait until age 66 and 2 months to be eligible for full benefits. This will rise all the way to an FRA of 67 in 2022 (for everyone born in 1960 or later). Expect more of this moving forward. Full retirement age might be 70 for today’s kindergarteners.

Today Social Security tax stands at 6.2% of your first $127,200 of earned income, or up to $7,886. Your employer matches this amount dollar for dollar. Self-employed folks pay 12.4% of earned income, or up to $15,772. You don’t need to have an advanced math degree to see that the politicians can extract more Social Security tax dollars by either increasing the rate (say to 6.5%) and/or increasing the level of earned income on which they charge the tax (say from $127,200 to $200,000).

Unless you are already retired, you probably don’t know about one other technique Congress now employs: the government reduces your Social Security benefit by raising your Medicare premiums, based on the income you report to the Internal Revenue Service. Today a married couple in the highest tax bracket could have their Social Security benefits reduced by over $8,000 per year. Expect similar means testing of your benefits in the future.

I encourage everyone to save so that you do not have to rely on the government for retirement security. Study how benefits are calculated in order to maximize yours. If possible, wait longer so that you can claim higher benefits. Don’t draw early simply out of fear that Social Security won’t exist in the future.

Meet the Author

Tom Coulter, CPA


Tom is the President and a founder of Meridian Trust. Tom graduated from The University of Tennessee, Knoxville, in accounting with honors, in 1978. Tom previously worked for the international accounting firm, Deloitte. He later joined the financial medical advising firm, FIS Associates, before founding Meridian Trust in 1997. Tom has worked extensively in retirement planning, taxation, estate and financial planning and investment management. He is a Certified Public Accountant, a member of the American Institute of CPAs (AICPA), and the Tennessee Society of CPAs (TSCPA).

Tom is also credentialed as a Personal Financial Specialist (PFS) by the AICPA.