Social Security is Running Out of Money and What You “Should” Do About It?
“By 2035, the funds of the Old-Age and Survivors Insurance (OASI) in the Social Security Trust fund will be depleted.”
“Before Social Security existed, about half of America’s senior citizens lived in poverty”
The 2019 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds from the Social Security Administration was released last week and what the report tells us warrants our attention and action.
Before we discuss the findings from the report and our response, let us review what the Social Security program is. The Social Security program provides workers and their families with retirement, disability, and survivors insurance benefits. Workers earn these benefits by paying into the system during their working years. The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, and the Disability Insurance (DI) Trust Fund, which pays disability benefits, are by law separate entities. However, to summarize overall Social Security finances, the Trustees have traditionally emphasized the financial status of the hypothetical combined OASI and DI Trust Funds. The combined funds—designated OASDI—satisfy the Trustees’ test of short-range (ten-year) financial adequacy because the Trustees project that the combined fund asset reserves at the beginning of each year will exceed that year’s projected cost throughout the short-range projection period. However, the funds fail the test of long-range close actuarial balance. The Trustees project that the combined trust funds will be depleted in 2035, a year later than projected in last year’s report.
Social Security faces funding challenges, but will not run out immediately and definitely not bankruptcy. Benefits are paid through payroll taxes collected from current workers and their employers, and the program currently operates with a surplus of about $2.89 trillion.
Yet with a rising number of retirees and a drop in the birthrate, that’s changing. Even if Congress does nothing to shore up the system by 2035, Social Security will be able to pay out 80 percent of promised benefits until 2090. The last time Social Security nearly depleted its reserves was in the early 1980s when Congress shored up the program by gradually increasing the full retirement age from 65 to 67 and started to tax benefits based on income levels.
We now understand changes to the current Social Security system are needed prior to 2035 to ensure continuity of current benefits. But, what can you do to protect your retirement plan from future changes in your Social Security benefits? Here are a few options:
- Review your current Retirement Income Plan- Now that the Trustees of the Social Security Trust Fund have provided their 2019 report, our first course of action is that we review our current Retirement Income plan. I recommend you review your Retirement Income plan at a minimum annually to ensure if your Social Security Income changes in the future that you have the sufficient resources and income needed to maintain your standard of living. Everyone right now should be reviewing their Retirement Income plan to provide peace of mind knowing that regardless of changes to the Social Security system your lifestyle will not change in the future. If you do not have a Retirement Income Plan that is written, detailed and realistic call us to schedule a complimentary Retirement Income analysis so we can assist you in developing one. Also, if you have a Retirement Income Plan that you would like an objective second opinion on we can review what you have and compare it to what your future income needs will be.
- Reduce monthly expenses– The biggest concern in the Social Security report is that your benefits could be reduced by 2035, if that were to happen, your best defense is to reduce your expenses. Eliminating debt that is related to credit cards, car loans, lines of credit, unsecured loans even mortgages give you the ability to comfortably maintain your standard of living in the event your Social Security benefits were reduced. If the Social Security benefits do not necessitate reduction, your initiative in reducing your monthly expenses help you in the long term, because you will have more resources to allocate to your emergency savings and investment plan. Give us a call at our office and let us assist you in a debt reduction/elimination plan.
- Increase Retirement income– Finding ways to increase your retirement income is our number one priority as retirement income specialists. Having sufficient, lifetime income in retirement should be the goal of every retiree and pre-retiree. By finding ways to increase your retirement income above and beyond your monthly expenses, even if your Social Security benefits are reduced in the future you should adequately be able to support and maintain your standard of living. We are here to assist you in finding ways to increase your retirement income now and for the future. If you would like a complimentary Retirement Income Analysis completed, give us a call so we can schedule a time to review your current income plan with you to identify any gaps that need to be addressed.
The “fake news” circulating that Social Security benefits will run out is false and misleading. Are Social Security and Medicare in need of repair? Yes, they are. Are we going to be without Social Security and Medicare in the future? No, we are not. But, we must be prepared through our own retirement income planning and course of action to meet all of our retirement income needs fully even if Social Security benefits remain the same as they are now or reduced to their projected levels.