Planning matters

Will there be any Social Security funds left by the time I retire?

Chances are you’ve run across this question either in your own mind or hearing someone else voice this concern. Here are a few facts to help answer this question.

  1. Social Security is not going bankrupt

Currently Social Security funds are near an all-time high. For decades, Social Security has collected more money than it paid out in benefits, with the cumulative surplus today worth almost $3 trillion. Even so, there is reason for concern over the long-term financial health of the funds. As the birth rate has fallen and more boomers retire, the ratio of workers to Social Security recipients is changing. Last year (2018) was a tipping point: For the first time, the program needed to dip into its reserves to pay full benefits. It’s now forecast that the trust fund reserves could be exhausted in 2034. However, even if that happens, Social Security won’t be bankrupt because of how the program operates.

  1. How it works

Social Security is a “pay-as-you-go” program. This means that the money paid in each year – through employer/employees, interest on Social Security trust funds, and taxes on Social Security benefits – is what funds the benefits paid out that year. So, the program is not at risk of running out, but if no changes are made, it is at risk of reducing the benefits for future retirees. It is currently forecasted to only pay out 80% of what recipients expect to receive starting in 2034. However, changes are in the works to keep that from happening.

  1. Changes ahead

If the goal is to keep benefits at their current expected levels, the sooner funding issues are addressed, the better. The earlier adjustments are made, the less dramatic they need to be, and the less burdensome it will be for the younger generations. The changes currently proposed by several members of Congress include raising the percentage rate of the payroll tax, raising the age for full retirement benefits, and raising or eliminating the wage cap on how much income is subject to the Social Security payroll tax (currently $132,900).

While it is true that Social Security is facing some long-term financial challenges, these challenges are known and solutions are in the works. To better understand the role Social Security benefits play in your overall retirement picture, schedule some time with your financial planner.


Reference: AARP November 2018 Special Report on Social Security

Written By Amanda Reynolds