By now you’ve almost certainly read or heard about the 2018 Social Security trustees’ report (if you want a link to the real thing you’ll find it here on the government’s website). Released last week, the report painted a fairly bleak – but not altogether surprising – picture of the Social Security program that is an essential pillar of financial security for about 59 million Americans. Because this program is so important to so many people, we wanted to share some perspective with our AgingOptions blog readers that helps paint a clearer picture of the future of Social Security and suggests what a fix might look like.
One Household in Six
We found such a perspective from one of our favorite sources of straightforward financial information, the Motley Fool website. There we discovered this article written by reporter Matthew Frankel called simply “5 Key Takeaways From the 2018 Social Security Trustees’ Report.” Frankel says his article explains “what all Americans should know about the current state of Social Security, and where it could be heading.” With about one American household in six affected in some way by Social Security, the health of this entitlement program – or the lack of it – really is essential information for every one of us.
“The 2018 Social Security trustees’ report was recently released,” Frankel writes, “and it reiterated what we already knew – that Social Security is going to be in serious trouble unless we take action.” But, he adds, “there’s a little more to the story than that.” For example, most people don’t know that Social Security currently has almost $3 trillion in reserves right now – which is the good news in that it buys a little time. But the long-term trends are disturbing, to say the least, and the question seems to be, “When will our political leaders find the political will to fix what’s broken?”
How Bad Is It?
With that in mind, and if like many of us you’re not entirely sure why Social Security is expected to be in trouble and what we could do about it, Frankel’s Motley Fool article offers “five key takeaways from the 2018 Social Security trustees’ report that help paint a clearer picture of the current and future state of Social Security, and what we could do to fix it.” Here are Frankel’s five observations and insights, along with some helpful perspective.
- Social Security added $44 billion to its reserves in 2017. This makes the program sound fiscally robust, and it is, says Frankel – today at least. In 2017 Social Security took in nearly one trillion dollars in income (from payroll taxes and earned interest) and spent around $952 billion. The total Social Security trust fund reserve is now close to $3 trillion dollars, money that is being held both as a “rainy day fund” and as a source of interest income.
- Social Security is still expected to run out of money in 2034. “Unfortunately,” Frankel writes, “the surplus Social Security produced in 2017 is the last one we’re going to see unless significant changes are made to the program.” How bad will it be? He adds, “For 2018, Social Security is expected to run a $2 billion deficit, and the annual deficit is only expected to get worse from here.” The deficit in the program, with Social Security shelling out more than it takes in, is projected to accelerate rapidly, with the reserve projected to be depleted in about 16 more years.
- Costs are exceeding income from payroll taxes, and it’s going to get worse. “The problems with Social Security,” says Motley Fool, “can be simplified as follows: [first,] Americans are living longer lives. [Second,] the massive baby boomer generation is going to be gradually retiring over the coming decades. The effect of this is that not enough people are going to be paying into Social Security, and too many people will be drawing benefits.”
- There’s a $13.2 trillion long-term deficit in Social Security funding. The projected deficit over the next 75 years in the Social Security program is getting bigger rapidly – now estimated at $13.2 trillion, up from a projected $12.5 trillion just a year ago. “In other words,” says Frankel, “this means that if we wanted to keep the program’s [benefits] and the payroll tax rate the same, we would need to somehow add $13.2 trillion to Social Security’s trust funds.” Therein lies the dilemma: where will that money come from?
- The sooner we try to solve the problem, the easier it will be. This is where the challenge of political will comes into the picture. “Obviously,” Frankel observes, “there’s not $13.2 trillion sitting around somewhere that can be magically added to Social Security’s balance sheet. So, the main ways to fix the deficit remain increasing taxes or cutting benefits.” In our observation, making a smaller course correction now will be far more palatable than waiting until 2034. That’s when the trustees project that the program would demand more drastic and painful adjustments, such as the estimated 23 percent across-the-board reduction in benefits that the anticipated shortfall would require.
Don’t Wait for Uncle Sam
As this debate continues to percolate, we’ll keep you posted on our AgingOptions blog and on our radio program. Meanwhile, we have a strong recommendation for all of you preparing to retire in the not too distant future: don’t wait for Uncle Sam to solve your retirement planning dilemma. Instead, take the bull by the horns and get some good, objective advice so you can build a retirement strategy that is comprehensive, robust, and uniquely suited to your situation. We’re talking about an AgingOptions LifePlan, the only approach to retirement planning that blends the essential elements of a true future strategy together into one complete blueprint: your health, your housing, your finances, your legal affairs, and communication with your loved ones. Don’t procrastinate and place yourself at the mercy of forces beyond your control. Take action today for a more secure life tomorrow.
The next step is simple: join Rajiv Nagaich for a free LifePlanning Seminar at a location that works best for you. You’ll find a complete listing of currently-scheduled seminars here on our Live Events page, where you can also register online. (If you prefer to sign up by phone, please feel free to call our office.) It will be a pleasure to meet you soon.
(originally reported at www.fool.com)