The future of the Social Security Administration is at a crossroads, with more than 71 million Americans, particularly those aged 65 and older, relying on its benefits. As of June, the average monthly payment of $1,837 serves as a crucial lifeline for many, rather than just a routine check.
Among older Americans, a significant 37% of men and 42% of women depend on Social Security for at least 50% of their income. Delving deeper, 12% of men and 15% of women rely on these benefits for a substantial nine out of every 10 dollars they receive.
The Social Security Funds Faces Future Depletions
The program is hurtling towards the depletion of its funds by 2034, putting the SSA in a position to pay only 77% of scheduled benefits in a decade. To avert this crisis, Congress faces the imperative task of recalibrating the program, considering options such as increasing retirement age, raising taxes, slashing delayed retirement credits, or cutting benefits.
While Social Security is a federal program, the geographical aspect cannot be overlooked. The impact of benefit reductions may vary depending on where you reside. Let’s explore the states that stand in a more favorable position, poised to weather the storm of potential cuts with the least amount of pain.
Utah, Alaska and Texas in a Better Position for Social Security Recipients
Residents of Utah, Alaska, and Texas appear to be well-positioned to weather potential reductions in Social Security benefits. This advantage stems from the demographic makeup of these states, as highlighted by data from the U.S. Census Bureau. Notably, they boast a younger population profile, with a lower proportion of individuals aged 67 and above compared to the national average.
According to the Population Resource Bureau, Texas, Alaska, and Utah rank as the three youngest states in America, with only 13.2%, 13.1%, and 11.7% of their population aged 65 and older, respectively. This contrasts sharply with the oldest states, Maine and Florida, where over 21% of the population falls into this age bracket.
Furthermore, these states demonstrate a lower percentage of their residents relying on Social Security benefits, as reported by the SSA. This suggests a reduced dependency on federal support among their populations.
What sets these states apart is not only their youthful demographics, but also the presence of robust state-based aid programs specifically designed for seniors. Even in the event of potential cutbacks at the federal level, Utah, Alaska, and Texas have established a safety net through their state-sponsored initiatives.
It’s as if they’ve proactively constructed financial bunkers to shield their residents from the potential storm of Social Security uncertainties. This dual advantage of a younger population and state-level support positions these states as more resilient in the face of changes to federal social programs.
US States That Don’t Tax Retirement Payments
Some states have a cool way of helping you out if your Social Security benefits might be reduced: they don’t tax your retirement income. This means you get to keep more of your hard-earned money for yourself.
In Illinois, residents pay a flat state income tax of 4.95%, but guess what? All retirement income is exempt. That means if you’re retired in Illinois, you don’t pay any state tax on money you take out from your 401(k), other work-related plans, or even self-directed plans like IRAs. They’ve got your back on state and local government deferred compensation plans, U.S. retirement bonds, and the federally taxed part of your Social Security benefits.
Starting in 2023, if you’re 55 or older in Iowa, you won’t be taxed on your retirement income from plans like 401(k), 403(b), and 457(b). They even exempt qualified annuity distributions, SEP, SIMPLE, and Keogh plans, as well as IRAs and Roth conversions. Iowa’s making it easier for you to enjoy your retirement bucks.
Mississippi is pretty chill too when it comes to taxing retirement benefits. According to their Department of Revenue, most retirement income, pensions, and annuities are tax-free if you meet the retirement plan requirements. Just watch out for early distributions—they might have a small tax tag.
Now, in Pennsylvania, commonly recognized retirement benefits won’t get taxed if you retired and met your employer’s retirement plan requirements. However, Pennsylvania isn’t as generous as some other states because it doesn’t exclude income from retirement annuities.