Gen-Xers have 20 years to retirement. You can take action now to maximize your future Social Security benefit. This is the third in a series on “Gen-X 20 Years to Retirement “, intended to explain Social Security and its place in your overall retirement plan.

About 6% of wage earners pay the maximum into Social Security which means that in theory, only 6% can earn the highest benefit. Why will it be difficult for me to earn the maximum? The story for Gen-Xers started decades ago when Social Security benefit programs were added without provision for the additional cost.

This article was written for Generation Xers (Gen-X) to explain what’s ahead of you when it comes to Social Security. Knowing the facts and understanding the system will help you. As I have mentioned in other Gen-X articles, Social Security is just one part of your plan for a successful retirement. Some of what I have presented here may seem to be negative but read on, it gets better.

---

How can I maximize earnings for Get-X Social Security is #3 in the series Generation X 20 Years to Retirement Series. Be sure to read all of the articles. Click the button at the bottom for the series and also join our interest list in a new educational course “Generation X Preparing for Retirement”

---

Your last 35 years are used to calculate benefits

A couple of decades ago, many more people were eligible to earn the maximum benefit because in order to earn this, your last 35 years of earnings must have been at the maximum limit. This means if you earned, for example, $50,000 in a year and the maximum Social Security charge was $48,000 then you hit the top and perhaps your last check had no SS taken out.

Many people had experienced years when they would hit the Social Security maximum during the year, perhaps as early as July. After that date, deductions for Social Security were done for the year. Social Security taxes however have increased over the years in an effort to reduce the cost to the Social Security Administration for your future benefits.

As the years went on, your salary failed to keep up with the ever-increasing Social Security limit. At some point, you were paying into your Social Security account all year. In later years, the difference between your annual salary and the Social Security limit grew even faster. Today, the maximum Social Security tax is based upon a salary of $160,200. 

The median income for a Gen-X 50-year-old is

The median income for a 60-year-old in the U.S. in 2020 was $55,484. A person earning this income may have hit the maximum in some of the prior 35 years but not for many of those years. This brings me back to where we started, you will probably not earn the maximum Social Security benefit. Let’s take a look at your potential income.

You are age 50, a member of the Gen-X generation. If you work for an additional 20 years to reach full retirement age, your monthly benefit will also include an additional 15 years of earnings stretching back to age 35, in the ancient days of 2008. If you are earning $60,444 which is near twice the national median for age 50, is it possible to reach the current $160,200? No, because this rate will continue to increase each year. 

Of course, you can earn a big bonus each year or get another job which would put you within range. The point is that the maximum tax rate is rising faster than most people can keep up with it.

So what does this mean for future Gen-X Social Security payments? 

• Earn more – You have twenty years to add to your benefit calculation plus those 15 trailing years. The more you earn, the more you will pay into Social Security which means your retirement income will grow. 
• Wait until you are age 70 to take your full Social Security benefits, there is a substantial earnings amount difference between 67 and 70.
• Continue to work beyond age 70 if you are healthy, take your benefit, and put it into a Roth IRA.
• Working past age 70 will increase your benefit amount because it is likely your recent years are the highest income you have earned. These last years will replace the earliest years going back 35 years ago.
• If your spouse can work this can add to your Social Security monthly payment.

Let’s be clear about your Gen-X Social Security retirement benefits, they will not by themselves provide a comfortable retirement for many. You must work at supplementing your Social Security benefits. This means saving and investing for future income.

Don’t be tempted by others who may encourage you to take early retirement when you are healthy. The last thing you need is a period of unemployment prior to age 70 as this will affect your eligibility year. 

A friend of mine at age 65 went to work for the local government

A friend of mine who worked for my company decided at age 65 to take a job with a local government. He left my company and took a job with the City for the purpose of earning an additional retirement. At age 70 he left the City job and retired. He took with him not only Social Security benefits but he earned a defined benefit pension for his five years. He was at that point drawing two benefits.

If you earned a pension, check with Social Security to be sure you qualify for both pension and Social Security

Some pension plans do not permit earning social security

The public sector is one of the few places that still provide pensions. And even 401(k) plans. My example above may be a possibility for you. That is working for a government agency long enough to supplement your retirement.

You could even work until you are 70, take full Social Security, and then work for the next five years in a short teaching career to earn a pension benefit. Working for a state government will also help pump up your total benefits. 

Drive a school bus to supplement your retirement

Drive a bus for a local school district for five years. There are many ways to help improve your retirement, even working at the federal level will pay benefits down the road. I am not encouraging you to leave your job just think about the timing for Social Security purposes. 

Take some action now regarding your Social Security benefit by going to the Social Security website and registering. You will be provided with the amount you will likely earn at retirement. The information there is necessary to enter into the budget tool. This site will give you insight into the Social Security benefit formula. 

Average annual cost of retirement compared to average annual SS payment

The table below indicates the shortage between Social Security benefits and the average cost of retirement in selected states. This chart may cause some critical discussions about where you may want to retire.

State	Average Annual Cost of Retirement	Average Annual Social Security Payment	Shortage
Mississippi	$43,400	$16,500	$26,900
Arizona	$50,300	$17,700	$32,600
Nevada	$52,900	$18,200	$34,700
Texas	$56,800	$19,000	$37,800
Illinois	$61,100	$20,100	$40,900
California	$70,100	$21,600	$48,500
Colorado	$67,400	$21,200	$46,200
Washington	$65,400	$20,700	$44,700
Minnesota	$63,200	$20,300	$42,900
New Jersey	$69,800	$21,800	$48,000
Oregon	$66,900	$21,400	$45,500
Idaho	$58,900	$19,600	$39,300
Florida	$59,700	$19,900	$39,800
Sources:	MetLife Mature Market Institute	Social Security Administration

Here are some facts that many people ask about:

• When the spouse earning the highest benefit passes, the surviving spouse will get the higher amount 
• Medicare is a separate plan but accessible on the Social Security website. Sign up at age 65, this is a must, if you fail to sign up when you turn 65 it will cost you for the rest of your life.
• Medicare payments are deducted from your Social Security benefit so always keep this in mind. Currently $164.90
• If you work after age 65 and do not take Medicare at 65, you must show proof that you were covered by an employer plan from age 65 until you retire. If not, it will cost you.
• Social Security benefits are electronically deposited into your bank account, they are paid once per month
• Social Security is indexed for inflation, the annual percentage is released in the third or fourth quarter.

Social Security is indexed

• If you take Social Security at age 67 (normal retirement age), there is no penalty. If you take it between ages 62 and 67 and work, there is a substantial penalty.
• Anytime you work at a W2 job, your income will be subject to Social Security payroll tax even if you are taking a benefit. 
• Social Security-covered employment subjects your income up to the current maximum to the tax. After your income has exceeded the maximum the remainder is not subject to payroll deduction.
• You will not be entitled to Social Security benefits for noncovered work. If you work for a contractor who pays cash and does not deduct Social Security, you will not be credited for any work benefits.
• 85% of your Social Security benefits are subject to federal income tax. Yes, you will pay income tax on the amount you already paid income tax on. To be fair, you never paid income tax on the employer contribution (they did).
• Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont tax Social Security benefits at varying rates with some deductions and exclusions. All other states and the District of Columbia exclude Social Security from state tax.

A key element in a successful Retirement Plan

Maximize your monthly income during retirement, savings is great but high Social Security Benefits, Pension Benefits and other monthly income is best.

If your employer does not contribute to your Social Security

I know several people working gig jobs or working full time for people who do not take out Social Security taxes from the pay. This non-covered work may be illegal to start with, on the other hand, you are being robbed. Did you know that your employer matches your contribution?

You pay 6.2% and your employer pays 6.2%. If you are working for cash and the amount is average, think about the fact that you are actually earning 6.2% less.

Every year that you fail to create Social Security earnings, you fall behind in earning as close to the maximum benefit as possible. By the way, there is a 1.45% Medicare tax that you pay, and your employer matches. There are actually some Gen-X people who have little or no Social Security benefits accrued even at age 50. How will they cover their medical expenses after age 65?

Will Social Security go away for Gen-X?

It’s not likely. The main reason is that your elected officials know that it would be political suicide to allow Social Security to fail. Another valid point that many don’t think about. There are over 60,000 employees working for the Social Security Administration. These employees would be out of work. How often do you hear that 60,000 long-time federal employees are laid off?

Never. The fact that these employees have their jobs on the line means they will lobby Congress to keep the program going.

What does this mean for your future? It’s likely that Congress will keep tinkering with the program. They may set future retirement dates further out e.g. from 70 to 71. It’s not likely that these dates will affect 50-year-old Gen-Xers. Many of the past changes were set decades into the future.

If there is a change from 70 to 71 it will probably affect Millennials. Even if they do change the retirement date, they only do these things in small increments.

---

Inflation Calculator

Starting Dollar Amount:

Starting Year:

Ending Year:

Expected CPI Percentage:

Use this inflation calculator to indicate the actual value of today’s money in your retirement year. The average inflation is about 3% which you can enter in the expected CPI Percentage.

---

More people may save for retirement

It’s fortunate that there is a discussion about the future of Social Security because it will hopefully cause more people to save for retirement. Using our budget tool will help you set limits on unnecessary spending and help you focus on earning the maximum you can during your remaining years in the workforce.

A word about Medicare. As mentioned, Medicare is actually a separate fund but it is required that you enroll at age 65. Many people when looking at their future Social Security benefits fail to take into consideration that a Medicare monthly premium is deducted from the benefit before it is paid. Currently, it’s $164.90 and will probably increase each year in the future. 

Most people also pay a small amount for Part C and Part D which is additional coverage and prescription drug coverage. This amount can be about $30 per month or more depending on the plan. Taking these plans is essential as Medicare will not cover everything.

Medicare cost is often ignored

There is much more to discuss on this topic but for this example, just consider that there are additional costs. Parts C and D are paid to an insurance carrier that you choose, not deducted from your benefit.

Before closing, some ask why Social Security is having financial issues. Most say it’s because people are living longer and this is true however, I believe that the primary reason is the approximate 20%+ of people receiving benefits that were never fully funded when they were added decades ago. I am speaking of the “Aid to dependent children” and “Social Security disability”. 

Regardless of your opinion of these plans being part of regular Social Security, not funding for them when they were created has dragged down the entire program since they were initiated. Even though to be fair, Congress at the time Social Security was created considered these plans, they never made provisions to fund them.

Had Social Security benefits been taxed at a higher rate in the 1960s and 1980s when these plans were added, the fund would probably be solvent today. This is just my personal opinion from what I have researched.  Regardless, we are here now and efforts are underway to correct the errors.

Don’t forget your retirement accounts

This article focuses on Social Security as a supplement to your retirement plan. You need to pack that 401(k) plan with lots of cash to achieve your goals in retirement. Read our article on 401(k) for self-employment. And our article about 401(k) if you are currently employed

Gen-X 20 Years to Retirement

Please read the other articles in our series on “Gen-X 20 Years to Retirement”. This is the third article, read the first article which is our introduction, and article two our excellent retirement budget tool. Additional articles will be added. Check this page which is a catalog of articles in our series.

This series is focused on Gex-X but as we discuss in other articles, don’t forget your children. Visit this page which offers a whole series on Millennial Financial Literacy.

This Gen-X Retirement in 20 years is sponsored by Logan-Anderson Gulf Coastal Realtors, part of your decision-making process will be if you relocate. Our article on your home and retirement lifestyle will include examples of living at a much lower cost and improving your life. In that article, you will be directed to obtain more information from Logan-Anderson Gulf Coastal Realtors.

Enter your email address at the top right of this article and you will be notified of future articles. Thank you for dropping by.

RetireCoast Course: Generation X Preparing for Retirement

A full educational course is in development that will greatly expand what is presented in our blogs about Generation X retirement. The course is designed to help Get-Xers get a head start on the process. The contents of the course will include facts, personal experiences and suggestions, recommendations.

The course outline will be available soon. An introduction to the course will be produced and become available to all who have joined our interest list. As soon as the course is complete, you will be invited to review a free chapter before deciding to register and pay the fee at that time. Complete the form below and click “submit” to join the interest list.

“Generation X Preparing for Retirement” interest list