What’s the Status of Social Security?

As we celebrate 250 years of the United States this month, it is a natural time to provide an update on one of the most American of financial inventions: Social Security. Interestingly enough, I just started a book titled Great American Investments: A History of Bold Initiatives that Shaped a Nation, and Social Security is the very first entry.

While most of the news about Social Security these days is negative, the author Charles Ellis makes a great point that Social Security is “by far America’s largest investment in preventing late-in-life poverty among the American people.” He goes on to say that it is one of the most popular and successful programs of the U.S. government.

Of course, you knew this wouldn’t be all good news, didn’t you? Unfortunately, the Board of Trustees of the Social Security and Medicare Trust Funds has recently updated that our trust funds are scheduled to be depleted more quickly than previously projected. The retirement trust fund is scheduled to be depleted in 2032. If this is combined with the disability fund, depletion would be extended to 2034.

As you can see in the chart above, the trust fund peaked at $2.9 trillion in 2020 and has since dropped rapidly. Since just about every family is affected by Social Security, you can imagine I’ve had hundreds, if not thousands, of conversations about it over the years. In my opinion, there are two really important points everyone should know about Social Security.

First, the funding shortage is a real problem. Unfortunately, the two biggest reasons are just simple math. The first is, of course, that we’re living much longer. The second is that people are having fewer kids these days. Add those two things up, and there aren’t enough people to tax to cover all the payments! See the chart below:

Second, I do not believe there is reason to worry about Social Security being eliminated. I often hear people say, “Oh, that will be gone by the time I retire.” I’ve never seen any research or projections that would support that. For example, if nothing is changed, the retirement benefits that could be paid out over the next 75 years would be 78% of

scheduled benefits. If the disability fund is combined with the retirement fund, the increase is to 83%. If benefits had to be reduced by 17-22%, that would be significant, but it is NOT disappearing!

So, where does all of this leave us? As usual, we start by wondering if politicians will ever actually do anything. Will they cut spending? [I’m sorry, I couldn’t resist that joke!] What other changes will they make? That is impossible to predict.

Having said that, I’ll share my opinion based on what I’ve read and heard. If you live on Social Security alone, I believe every effort will be made to help you retain all your benefits. However, if you’re like most of our clients, Social Security is an important part of your retirement, but it’s not the only thing. I fear that those Americans will be the ones targeted. For example, if your income or retirement account assets reach a certain level, either your benefits are reduced or the tax on your benefits increases.

While it’s too early to know exactly how those changes would affect any of us, they underscore one of our biggest philosophies: The foundation of a successful retirement is a written retirement income plan. Once we have your written retirement income plan, we can stress-test it against challenges that could arise in retirement. We could test it if inflation increases. We could test it if tax rates increase, and we can test it if your Social Security benefits are reduced.

If you don’t have a written retirement plan, or if it’s been a while since we’ve updated yours, reach out to us so we can help ensure you can enjoy your retirement regardless of what happens with Social Security.

Warmly,

Founder and Managing Partner

Preservation Specialists, LLC

(803) 798-1988