At more than $800 billion, the largest single expenditure item in the federal government’s budget is Social Security. Not surprisingly, Vermonters get a chunk of that money. In 2012, 135,000 Vermonters—more than one in five of us—received checks totaling $1.8 billion from the Social Security Administration.
One third of those Vermonters—45,000—receive a check because they are disabled or the spouse or child of a Social Security recipient. But most Social Security recipients, more than 90,000 Vermonters, receive a check because they are retired.
The number of beneficiaries has been growing rapidly. Ten years ago 70,000 Vermonters received a retiree check. In the future, growth will be even faster. By 2020 about 120,000 retirees will be receiving benefits, and by 2030 that will increase to 150,000 Vermonters. Add to that people getting benefits from other Social Security programs and in fifteen years one-third of all Vermonters will be receiving a monthly check from Social Security.
By 2035 Social Security, as it’s currently structured, won’t have enough assets or revenues to pay all the benefits promised to those people, but that’s a story for another day.
For many current retirees, and no doubt future ones as well, Social Security does not provide a comfortable retirement income, nor was it ever meant to. President Franklin Roosevelt saw Social Security as a way to “give some measure of protection to the average citizen … against poverty-ridden old age.”
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The average Vermont retiree receives $1,263 per month from Social Security—about $15,000 per year. That does provide some measure of protection against poverty in old age, but it’s hardly enough live a comfortable lifestyle without another source of income.
We don’t have specific data for Vermont, but the unfortunate truth is that nationally, one-third of retirees don’t have much other income and get all of their retirement income from Social Security. Two-thirds of retirees rely on Social Security for half or more of their retirement income.
How will Vermont’s future retirees finance their retirements in their 60s, 70s, 80s and beyond? One way is by working longer and retiring later. That’s not necessarily incompatible with enjoyable golden years. More than one-third of Americans between the ages of 65 and 69 work as do one out of five between 70 and 74.
It’s not a good idea to think of 65 as the ‘normal’ retirement age, for several reasons. For one, the age of full Social Security benefits is no longer 65. It’s 66 for anyone born after 1954, and 67 for people born after 1960. Of course anyone can retire at any age, but 62 is the earliest age at which Social Security retirement benefits can begin.
Secondly, early retirement can be dangerous to your financial well-being. Someone who turns 62 and starts receiving benefits will get 25 percent less per month than he would if he waited until he was 66.
Someone who waits until she turns 70 to start receiving benefits will get one-third more each month than if she had started at 66.
There’s a huge financial benefit to delaying Social Security: Suppose someone begins getting Social Security at age 66 and gets a monthly check for $1,500. If instead he begins taking benefits at age 62 (which is the most common age at which people actually do begin taking benefits) he receives only $1,125 per month. If he waits until he’s 70 years old his monthly check will be $2,000.
That means getting benefits at age 70 instead of 62 gives a person 80 percent more every month. Even if you don’t wait until 70, each year you delay benefits means your annual Social Security income rises by eight percent. That’s not a bad return on an investment of one year of waiting.
As Vermont’s population ages, more and more retirees will be dependent on Social Security. But those checks won’t be enough to guarantee anyone a comfortable retirement. Vermonters, like the rest of Americans, are going to have to save more, retire later, or supplement Social Security by working at least part-time while they are retired.
Art Woolf is associate professor of economics at UVM and editor of The Vermont Economy Newsletter.
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