Cyber Security, Home Security, Personal Security…but SOCIAL Security?

park, bike, senior-5528190.jpg

Are YOU Feeling Very Secure?

Somewhat ironic perhaps? “Social Security” conjures up neither feelings of security nor being very social these days. It’s simply not new news that our Social Security program has challenges that lie ahead.

Changing the paradigm a bit, however, the gloom and angst around our Social Security program creates great reason to celebrate!  What?!

The mathematics for the Social Security program worked well when we paid in for many years, retired at 65 and then reached our “end of plan” at much younger ages. Now, however, thanks to modern advances in medicine and other, we have the possibility of living many years past age 65.  Each year is a gift to enjoy family, hobbies, travel and friends. In addition, in 1935 when the program was signed into law by FDR, the population did not have the “baby boomer” age distribution bump it has today.

That all said, the gift of our extended longevity most definitely creates a mathematical (and political) problem for the sustainability of the Social Security coffers.  For perspective, a recent article from Bloomberg outlined some of the potential funding issues with the program and the estimated cuts needed by 2033 if the program continues on its current path:

“It estimates that a typical, newly retired, dual-income couple would see a drop of about $17,400, amounting to roughly $1,450 a month. Couples who earned more in their careers on average could see roughly $23,000 in benefits cut.” (Source: Bloomberg)

For the vast majority of the population, those are BIG numbers. And this dent is projected to kick-in for people who are around the age of 55 currently. 

These figures “stem from a projection that by 2033 the amount of payroll taxes flowing into Social Security’s Old-Age and Survivors Insurance Trust Fund will be less than what’s needed to pay full benefits.” So, political discussion aside, the impact for such reductions for those individuals and families yet-to-begin collecting on Social Security benefits could be material.

The message is clear – so clear, in fact, it’s even stated directly on current Social Security benefit letters:

Social Security will it be there when you retire?

The Social Security taxes you pay go into the Social Security Trust Funds that are used to pay benefits to current beneficiaries. The Social Security Board of Trustees estimates that, based on current law, the Trust Funds will be able to pay benefits in full and on time until 2034. In 2034, Social Security would still be able to pay about $800 for every $1,000 in benefits scheduled.

So how do you prepare, fully recognizing that our political administrations can and will dramatically affect the possible solution sets?

Take the warnings seriously – if the program gets shored up temporarily, you get to go on an extra vacation or can fulfill other discretionary goals. If it doesn’t, however, you have planned accordingly.  For our clients’ plans, we often intentionally reduce the current advertised benefit amount to model and project the impact to retirement plans.  This allows clients to make adjustments now as/if appropriate while they still have time to do so.

The first step is to obtain a copy or your current benefit statement.  The next step is to understand the impact to your retirement lifestyle should the reduction in benefits become reality – especially for those getting closer to the age that will be first affected by the projected shortfall (age 55).  It’s also important for everyone paying into the system to understand that their tax responsibility may be affected (potentially to the higher side) by any solutions that come forth.

There already are, and will be a multitude more proposed legislative changes surrounding this hot potato, particularly as we approach the date of shortfall.  We won’t know anything until something actually gets signed, of course, but it surely can’t hurt to be aware of the possible impact these changes could have during your hard-earned financial freedom years – while you still have time to take action.

Need help determining what your retirement plan looks like?  We can help.