Debunking Social Security – Part 1

by | Aug 1, 2019 | Our 2 Cents

Quite simply, Social Security is one of the biggest areas of confusion for our clients. When do they file for it? Will it go bankrupt? Can they count on it? Do they only get benefits if they worked? These are just a few of the common questions we receive. Our goal is to provide some critical information that will help you better understand this benefit. Social Security is a massive system, and this single page article is not designed to cover every aspect of it. 

1) How does Social Security actually work? – Social Security is designed not to go bankrupt. Social Security has often been called a pay-as-you-go system. This means that current workers are paying for the benefits of current retirees. Therefore, you do not have an account with Social Security. When you retire, current American workers paying into the system will pay for your benefits. What can happen is that Social Security benefits could be reduced if there’s not enough being paid into the system.

2) Social Security is fully funded through 2035 – this is according to the most recent,yearly report released by the Social Security Board of Trustees. That means no potential reduction in benefits will occur until 2035 as the system is currently structured. Changes can be made to ensure benefits are not reduced as has happened in the past.

3) Spouses who never worked are likely entitled to a benefit – this is referred to as a Social Security spousal benefit and is often overlooked by many people. In a traditional American family, one spouse worked while the other took care of the home. Even though the person at home didn’t work, they still filled an important role within society. Therefore, that person can be entitled to a benefit up to 50% of the working spouse’s retirement benefit. If you’re entitled to a spousal benefit, you have to wait until your working spouse files for his/her benefit before you receive your spousal benefit.

4) Full Retirement Age (FRA) is between 66 or 67 depending on when you were born.  The image below shows that taking Social Security benefits before or after your full retirement age can either lead to a reduction in benefits or an increase in benefits.

Source: MFS Fund Distributors

5) Social Security benefits are averaged over your 35 highest earning years. To qualify for a retirement benefit, you must have at least 40 qualifying credits (about 10 years of work). It’s important to notice that if one or more of your highest earning years is$0 (indicating you did not work), this will have a heavy impact on your projected benefit.

6) You can see a projection of your benefits by logging into’s very important to realize that the benefit showing on that site is in today’s dollars. Social Security benefits are typically (but not always) increased yearly to account for inflation. Therefore, your benefit can increase. If you’re younger, your benefit will likely increase as you work more.

7) When should you file for benefits? – there are a lot of factors to consider here. The earlier you take your benefits, the more reduced they are going to be, however, that gives your other investments more time to be invested and working for you. This is a complex calculation that gets considered in every financial plan that we create. Do we want to maximize Social Security benefits or maximize total plan assets?

This material contains information regarding the availability of and details surrounding the Social Security program. The information represents only our current understanding of Social Security in general and should not be considered legal or tax advice by consumers. Details of the Social Security program are subject to change at any time. Neither Phillips Financial Advisors nor its representatives offer legal or tax advice. Consumer should consult with their tax or legal advisor regarding their individual situations before making any legal or tax-related decisions.