Social Security is the most important retirement plan ever created in the United States.
Around 70 million Americans receive Social Security benefits. That number will surely rise in the years ahead as more baby boomers retire.
For people who are 65 or older, more than 40% of recipients receive 50% or more of their income from Social Security. Millions of retirees would be impoverished without Social Security benefits:
Here are some lingering questions about the program:
Is it going insolvent? According to the latest report from the Social Security Administration, the trust fund will be paying out more money than it’s bringing in starting in 2034.
Social Security is a pay-as-you-go program that is funded by current tax receipts. With more people retiring than ever before we’re looking at going from 2.7 workers per beneficiary to 2.3 by 2035.
That puts some strain on the funds, which are inflation-adjusted.
But this stuff is governed by math. The actuaries model out 75 years into the future every year. The trust fund will still cover around 80 cents on the dollar in the mid-2030s:
That’s not ideal but not the end of the world either.
Can young people still expect to receive benefits? If nothing is done, the SSA still expects the revenue Social Security taxes bring in will cover around 70 cents on the dollar by 2099 (when I’m 118 years old).
So yeah, young people can expect to receive some Social Security benefits.
Can we fill the gap? It depends on what the politicians decide to do.
They could simply fund the difference by diverting spending from elsewhere or taking on more debt. We’re good at borrowing more money.
You could also cut down on future strain by increasing the retirement age for say people currently under 40 or 50. You could increase the cap for earnings that are subject to Social Security taxes to bring in more revenue.
There are some simple fixes if anyone ever wants to tackle this.
What if they cut benefits? That’s another option. People could get 80 cents on the dollar in the 2030s if they don’t agree on a solution by then.
You never know what politicians will do tomorrow let alone eight years from now.
But I can’t imagine any politician would be dumb brave enough to cut benefits. It would be political suicide.
An AARP survey found 95% of Republicans, 98% of Democrats and 93% of independents support Social Security. We can’t get 90%+ people to agree on anything these days.
I don’t know what the future holds but Social Security is not a huge worry of mine.
What will be important is how and when retirees decide to claim benefits in the years ahead.
This week on Talking Wealth I spoke to Mike Piper from Oblivious Investor about the solvency of the program, when to claim your benefits, the average Social Security check size and much more:
Be sure to check out Mike’s free Social Security calculator at Open Social Security.
The podcast version is here:
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Further Reading:
The Most Important Retirement Plan Ever Created
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