When we talk with clients about planning for retirement, many express concern about the viability of the Social Security system. Some people feel compelled to start drawing at the earliest possible age to ensure they get some payback. Others request that we omit Social Security income in their retirement projections, despite years of payments into the system.
We can understand this unease, as there are a lot of alarmist headlines about trust fund depletion. But trust fund depletion doesn’t mean bankruptcy. If nothing is done by Congress, there will still be enough funding from payroll taxes to continue 78% of the scheduled benefits.
Social Security’s expected shortfall has been forecast for decades, but there have been no successful comprehensive reform efforts since 1983 – the last time it teetered on the brink of insolvency. Lawmakers have a broad list of policy options to consider. The Social Security’s Office of the Chief Actuary has proposed more than 140 possible actions, some of which include the following:
Each passing day without legislative action comes at a cost. If action is deferred for several more years, the necessary changes become concentrated over fewer years and future generations. For example, if nothing is done until 2034, when the trust fund reserves are fully depleted, the FICA tax would need to be increased from the current 12.4% to 16.6%.
Will Social Security be there for you? The short answer is that it probably will be paying out benefits for decades to come. It is in good shape to continue payouts through 2034, and can continue payouts of 78% after that, even if Congress makes no changes to the system. However, the likelihood is high that Congress will make some changes to ensure that our nation’s bedrock retirement system remains fully viable, as has always happened in the past when the program faced possible failure.
As always, there are more sides to the story, especially when talking about a system as complicated as Social Security. Before you make a decision about your own Social Security benefits, or if you have other questions or concerns related to your specific situation, please be sure to talk with your planner.
