Is Social Security Really Going Broke?

It seems to be the question I receive just about every day from retirees who are asking, boomers who are asking and young families who are asking. Let’s face it ... everyone is asking and they all seem to be extremely concerned about their financial futures!

Well, my response to this question is a resounding No!

We have all heard the Social Security System has in begun paying out more in benefits than they are receiving in revenues and with a continuation of the status-quo, the Trust Fund will be depleted by 2036.

What many are not aware of is what that really means or what impact it will have on them and the younger generations who are concerned with the impact on them. So read on and allow me to add a bit of insight.

Social Security was designed as a pay-as-you-go system. Payroll taxes from current workers go into a trust fund and are immediately paid out to current retirees. You see, when Social Security was first instituted in 1935, there were some 40 workers paying into the system for every retiree drawing benefits out.

Because baby boomers have been in their peak earning years, the trust fund has accumulated more than needed for current benefits. Right now the trust fund holds about $2.6 trillion, which is invested in special-issue treasury securities. As more and more boomers retire, these trust fund assets will gradually be drawn down and as more baby boomers retire, there will be just 2 or 3 workers paying in for every retiree drawing benefits out. There are enough reserves that the system will be able to pay 100 percent of promised benefits until 2036. After that, if nothing is done to reform the system, income will be sufficient to cover just 77 percent of promised benefits.

This tells us reforms to the Social Security system are needed to restore future solvency to the system. Even though the system is not in imminent danger, most people agree that the earlier reforms are instituted, the less painful they will be on everyone. Here are just a few of the ideas that have been proposed:

One is to increase the maximum earnings subject to Social Security tax. Currently, $110,100 in earnings are subject to the combined 6.2 percent tax paid the worker and the employer.

Another is to again raise the normal retirement age as life expectancies increase. Currently, full retirement age is 66 for people born between 1943 and 1954, and 67 for people born in 1960 or later.

Still another reform proposal would change the benefit formula so that future increases would happen at a slower pace. This would affect the benefits of future retirees.

And some are talking about changing the formula for cost-of-living adjustments. This could give retirees smaller benefit increases going forward, although the changes are expected to be minimal.

As you can see, the future of Social Security is as it always was ... it will be there for everyone. Although, as with everything in life, it will require adjustments and constant review to successfully navigate an uncertain future.

The bottom line as I see it; Current recipients and boomers will see little if any change. Younger generations may find full retirement age raised a bit based on higher future life expectancies. It is also possible we may all feel a bit of a tax bite, but if you tally up the total return of your future benefits, you will find it will be worth the bite.

Watch for my next post where we will explore how much your benefit may be worth to you and your survivors and the impact of taking your benefits early (62) or at full retirement age or delaying to age 70. You may be surprised!

All comments are welcome.

If you have a topic you would like me to address, just let me know. Also, you may feel free to contact me directly for personal issues you would like to discuss. 724-260-5492