Yellowstone Financial, Inc.

Social Security: Not Just for Retirees

If you’re under 50, you’re probably not counting on Social Security.  This lack of confidence is striking when you consider you’ve been paying into it for your entire working life with up to 6.2 percent of your pay withheld and your employer matching that contribution.  In a Gallup poll of nonretirees in April, 71 percent of respondents said that they do not expect Social Security to be a major source of income when they retire.   The confidence in Social Security would be even weaker for workers far from retirement.

In truth, Social Security as a program is in much better shape than Medicare.  Most experts predict that Social Security retirement benefits will be there decades from now, although we may see retirement ages creep up and means testing for benefits.  Translate this to mean: if your income or net worth is significantly above the median then your benefits may be reduced in the future.

So how does it help you now?  Imagine you’re 40 years old, a full 27 years younger than full retirement age.  You’re married and with two young kids at home.  Social Security may seem irrelevant to you, but it’s helping you right now.  Don’t believe me?  Consider these two scenarios.

Let’s start with a grim thought: you don’t live to see the end of next year.  With your income gone, your family may have a hard time getting by after your death.  That could mean no college money for the kids and being forced to sell your family’s house.  You always meant to get life insurance, but never quite got around to it because of having to deal with insurance agents and medical exams.  (There are ways to minimize these hassles, but that’s for another column).

If your family is lucky, you might have term life insurance through work equal to 2 times your annual income.  Imagine you earned $100,000 a year, that would mean $200,000 to your family.  While this is nothing to scoff at, it pales in comparison to the value of the $100,000 a year income you were earning.

This is when Social Security steps in.  Survivor benefits provide a payment for your dependents under 18 years old as well as your spouse who is caring for your child under 16 years old.    In the example above, a person earning $100,000 this year who had been getting regular pay raises would leave a survivor’s benefit of over $3,800 a month for the spouse and two children under 16.  This can be the difference between poverty and a financially comfortable life.

Let’s change the circumstances.  Now you are injured in a car wreck and no longer able work.  Many jobs come with long-term disability insurance, which pays monthly income if you’re unable to work.  But you were working for a small startup that was more focused on bringing products to market quickly than providing disability insurance to its employees.  You could have found disability insurance on your own, but buying it can be costly and involve a protracted process.

Again Social Security could pay benefits to you for as long as you’re disabled.  Note that qualifying for Social Security disability benefits is not easy, with an average of 28 percent initially approved and 42 percent ultimately approved.  Your condition must be expected to last at least one year and prevent you for holding down any type of full-type work.  With previous income of $100,000 a year, you might qualify for $2,600 in monthly benefits.

I don’t want to sugarcoat the benefits of Social Security here.  Private life and disability insurance are usually recommended to ensure that your family could get along without your income.  But Social Security does supply a valuable safety net to workers of all ages that could help you or your loved ones avoid poverty’s door in case of your death or disability.

This column is dedicated to James Biar, who survived being a childhood refugee in Sudan and touched countless friends, family members, and whomever was lucky enough to go through his line at King Soopers.  He passed away suddenly last month leaving a wife and five young children.  More information can be found at