Most people expect to have a portion of their retirement income funded by Social Security. Unfortunately if adjustments are not made to the system, the trust fund will be depleted. This is not a surprise. Our government has been aware of this issue but it is an easy can to kick down the road. Politicians tend to be older and the problem will occur when they are long out of office. It is a political third rail and few have the political capital or willpower to address. The longer we go without making adjustments, the bigger the adjustments will have to be. The following is a recent post highlighting several issues that readers should be aware of. Please feel free to leave your opinion in the comment section below.
CNN Money – If lawmakers don’t act, Social Security’s trust fund will be tapped out in about 18 years.
That’s one takeaway from the Social Security and Medicare trustees’ annual report released Wednesday.
That doesn’t mean retirees will get nothing by 2034. It means that at that point the program will only have enough revenue coming in to pay 79% of promised benefits.
So if you’re expecting to get $2,000 a month, the program will only be able to pay $1,580.
Technically, Social Security is funded by two trust funds — one for retiree benefits and one for disability benefits.
The 2034 date is the exhaustion date for both funds when combined. But if considered separately, the old-age fund will be exhausted by 2035, after which it would be able to pay just 77% of benefits. And the disability fund will be tapped out by 2023, at which point it could only pay out 89% of promised benefits.
To make all of Social Security solvent for the next 75 years would require the equivalent of any of the following: immediately raising the Social Security payroll tax rate to 14.98% from 12.4% on the first $118,500 of wages; cutting benefits by 16%; or some combination of the two.
Bloomberg – Among the elderly, 53 percent of married couples get more than half their income from the program. For the unmarried elderly, it’s even more critical: Some 74 percent get more than half their income, and 47 percent get more than 90 percent of their income from the program.
Any move to scale back the program (let alone eliminate it) would come as Americans become increasingly dependent on it to survive. The disappearance of defined-benefit pensions and the inadequacy and unreliability of 401(k) accounts, mean that more retirees, not fewer, are likely to need Social Security in the coming years.
Chicago Tribune – Social Security’s shortfall is real and “there’s no silver bullet,” wrote Alicia Munnell (Director at The Center For Retirement Research at Boston College) who has had a ringside seat as chair of the Social Security Advisory Board’s Technical Panel on Assumptions and Methods. “The long-run deficit can be eliminated only by putting more money into the system or by cutting benefits.”
So if you think this is just a matter of cutting some administrative costs or government waste, you are wrong. The shortfall has been calculated at $11.4 trillion for over the next 75 years — a number that sounds huge but is manageable with changes and a growing economy, Munnell said.
Still, the solution is not going to be politically easy.