Social Security Is In Trouble. Here’s What To Do
When Social Security was conceived and enacted in the 1930s, Congress set it up as a "pay as you go" scheme. There would be no real funding in advance. Each generation would receive benefits funded by people still working. Then when those people retired, they would receive benefits funded by the next generations of workers, and so on.
What Congress didn't anticipate, however, was that there would be a big baby boom following a world war they didn't anticipate at the time, followed by a "baby bust." As a result, we have a huge demographic cohort entering retirement as you read this - and their Social Security benefits must be funded by a relatively small number of workers.
As things stand, the funding system undergirding Social Security will soon be overwhelmed. Current workers are simply not paying enough money into the system to fund current benefit levels for baby boomer retirees. Something, somewhere, will have to give.
The Problem
How severe is the shortfall? The current projection of the Social Security Board of Trustees is that the "trust fund" of government bond will be depleted sometime between 2033 and 2037 unless Congress intervenes. But the problem is on us already:
The Social Security program is already operating at a cash flow deficit: It is spending more money than it is taking in, and has since 2010. The Social Security Administration estimates that the program will run at an average annual shortfall of $77 billion between 2014 and 2018. After that point, the deficit will increase substantially as the economic recovery matures and wage growth slows.
After about 2033, the Social Security Administration projects that it will only be able to fund about 75 percent of currently promised benefits.
Solutions
As we mentioned, something is going to have to give. Sooner or later, Congress must make a decision to do one or more of these things:
- Increase the retirement age
- Increase payroll taxes
- Decrease benefits
- "Means-test" Social Security Benefits
- Privatize some percentage of the Social Security Trust Fund in the hopes of receiving better returns on the money.
At any rate, workers must anticipate the possibility that the Social Security Safety net - never that big to begin with - will be much smaller than it is today. Workers will have to work longer careers and will have to make do with smaller monthly income payments.
What To Do
Those currently receiving benefits likely have nothing to worry about. Benefits for those people and those retiring in the next few years are probably not at risk. Younger workers, however, should be taking the following actions:
- Restricting needless expenditures
- Avoiding credit card and consumer debt
- Contributing as much as possible into your own private retirement savings:
- 401(k) plans
- 403(b) plans
- 457 plans
- Thrift Savings Plan (federal employees)
- IRAs
- Roth IRAs
- SIMPLE IRAs
- SEPs (Simplified Employee Retirement Plans)
- Annuities
- Cash value life insurance
- Taxable private savings
- Home equity
For more information, feel free to Contact Neptune Financial to schedule an appointment.
Basic Understanding
This blog is being provided for informational or educational purposes only. It does not take into an investment objectives or financial situation of any individual, family, prospect, client, or prospective clients. The information is not written or intended as investment advice and is not a recommendation about managing or investing your retirement savings.
An individual seeking information regarding their investment or retirement needs should contact a financial professional.
Neptune Financial, and their financial professionals do not render tax and legal advice. Please consult your tax and legal advisors regarding your personal tax or legal concerns.
