Lately, the noise concerning social security has been deafening. Is the system broke? Will it be around in 20 years? Should future retirees count on ANY social security income in retirement.
So I’d like to weigh in for you. What may happen and what you should do.
Do I think social security will go away or be radically different. NO. Might there be changes down the road - absolutely. What can you do right now - not much, but it pays to be informed.
Here’s what we know:
1) Social security is in a bit of trouble. Not that it’s insolvent pre se but there are far fewer people putting into the system than when the program was created back in 1935. At that time, there were as many as 42 people contributing to the social security fund for every one person taking out. That landslide ratio is no longer the case. Now it’s more like 3 to 1 and in ten years or so, that figure looks to be closer to 2 to 1. Remember that social security was intended to be insurance against living to long; however, over time it’s morphed into a pseudo-retirement program that covers many people for a quarter of their lives. The fact is that the demographic shifts in our population have weakened the system. (The boomers!)
This from a recent Chicago Tribune article:
"Social Security as a program is facing insolvency and will not be able to pay the full promised benefits in about 16 years from now," she said. "It concerns me that nobody's really talking seriously about fixing it.”
And this from the Washington Post:
"Buried deep within the yearly 200 page report generated by the social security system’s trustees, "the Treasury has had to borrow more than $200 billion from investors over the past three years to keep Social Security’s retirement and disability checks from bouncing.”
To be fair, anytime a government program affects so many, there is bound to be controversy. This subject is no different. There are some who say the system is in dire straights and others who rail against this perceived fear mongering. It will pay to be informed, but also to take everything with a grain of salt. This problem will be solved over the long term; however it is the short term that brings me to my second point.
2) The Republican controlled Congress is eager to make substantive changes to social security.
For me this is the bigger issue. You can slice and dice potential changes however you want but this Republican Congress is not going to expand benefits for the middle class. My crystal ball shows the opposite. That there will be less help for aging boomers.
To be sure, Trump may not agree or go along willingly. After all, one of his campaign pledges was to not mess with social security but some (many) of the people securing positions in his administration have deeply held beliefs about the system. From Forbes.com: (From before inauguration.)
"The man heading the Trump transition team's Social Security effort? Michael Korbey, a former lobbyist who has spent much of his career advocating for cutting and privatizing the program, according to Yahoo News.”
And this about Paul Ryan. (Also from Forbes.)
"Ryan has also supported limiting Social Security benefits by, among other things, raising the retirement age for full benefits to as high as 69 or 70. (Under current law, it's now 66 and will rise gradually to 67."
So none of this will be resolved overnight, but, in the meantime, here’s how I advise my clients who are predominately middle-class couples. There is no lifeboat coming. The current proposals suggest tax cuts for the upper-class and it’s “regular folk” who seem to get the short end of the stick. A small tax cut NOW won’t matter if social security and medicare provide far less in retirement.
Will these benefits be there in 15 years. I believe so but small tweaks could have a meaningful. Impact on your retirement. Let’s say the early claiming age is raised from 62 to 66. Not good. Further, while retirees currently receive the highest possible benefit if they wait until 70 to claim, initially, what if that age increases to 74?
(Small changes like these are TAX INCREASES, although it won’t be spun that way.)
In aggregate, small changes like what’s being proposed added to potential reductions in Medicare could turn substantial. (Medicare is too big a topic for this post but, trust me, a far, bigger problem…)
So I tell whoever will listen, prepare for the worst. Save more. Be more financially disciplined and protect the downside when it comes to your investments. (Read: Why I’m taking chips off the table.)
You’ll be better prepared for whatever comes down the pipe if you do.
That’s just the way it works!
Required disclosures: Investment advisory services offered through Brookstone Capital Management, LLC (BCM), a registered investment advisor. BCM and (Strataxa Retirement Advisors, LLC) are independent of each other. Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents.
Information provided is not intended as tax or legal advice, and should not be relied on as such. You are encouraged to seek tax or legal advice from an independent professional