Social Security is a key part of the majority of Americans’ overall retirement plan. The vast majority of Americans are entitled to some type of Social Security benefit, even if you never paid into it (think spousal benefits).
The Boston College “Social Security Financial Outlook” for 2022 was just released. If you would like to read the entire 10-page report, I have provided a link to download it below:
The brief’s key finds are:
- The 2022 Trustees Report has no real news about Social Security’s overall future.
- The 75-year deficit inched from 3.54 to 3.42 percent of taxable payrolls, and
- the trust fund depletion date moved back one year – from 2034 to 2035.
- Interestingly, a lower assumed disability incidence rate allows the DI trust fund to pay full benefits for the next 75 years.
- And, given today’s inflation, it’s worth stressing that Social Security COLAs protect retirees against rising prices.
Originally signed into law in 1935 by FDR to act as a social safety net after an alarming number of unemployed and elderly citizens had lost everything during the Great Depression. Like most government programs, it was started with good intentions but ended up turning into an unstoppable monster.
After decades of mismanagement and bureaucrats that are accountable to pretty much no one, there have been all kinds of speculation about the solvency of Social Security in the near future.
The biggest challenges Social Security faces are:
- There are fewer people paying into the program than there are receiving benefits from it.
It acts just like a pyramid scheme. As long as there are new people paying into the program, then everyone who got in first will get their money back. After the great depression, we found ourselves in a second World War. And when our soldiers returned home, they made babies. Lots and lots of babies (hence the baby-boomer generation). Since then, our birthing rates have dropped significantly and now all those baby boomers are lining up to get their benefits (rightfully so), but there are fewer people paying into the system.
- People are living longer.
When Social Security was originally established, the average life expectancy for an adult male in the United States was around 65. That number has increased significantly! Now, not only are there fewer people paying into the program, but the people already receiving their benefits from the program are going to be drawing from it for a much longer period of time.
Okay, enough of the bad news. What about the good news? Well, I can assure you with almost complete certainty (I always say, the only things that are certain in this life are death, taxes, and annuities) that Social Security will not be allowed to go bankrupt.
No politician will vote to do what is necessary to fix Social Security, so they will just keep printing money to fund the gaps, and eventually, they will raise taxes to help make up some of the difference.
At the time of this writing, employees and employers pay 6.2% each (12.4% total) into the Social Security system on incomes up to $128,400. And since there are fewer people paying into the system, the only alternative is to raise either the percentage levied or the amount of income that it is levied against.
Another arrow remaining in Social Security’s quiver is to continue to raise the Full Retirement Age (FRA), forcing Americans to work longer to receive their benefit.
So, what are the cascading effects of these solutions?
If the government keeps taking loans from the Federal Reserve (i.e., printing money out of thin air), that will make things more expensive. Also, known as inflation. We are experiencing the effects of that right now. When things cost more, then there is less money to invest and keep in equities/bonds (forcing the sale of investments) because people will need the money for living expenses.
If the government raises the employer and employee tax rate and/or income level for Social Security, then there will be less money available for investing and equity markets will continue to lag (not enough buyers of investments). And/or, employers will stop becoming employers. They will just make the labor force they need to operate their businesses become independent contractors, and then even fewer people will be paying into the system.
So, the most viable option will be to raise the Full Retirement Age. People will have to work longer. This may not be an issue for someone who has a “white-collar” job, but what about the construction workers, police officers, and firefighters. How many 70-year-old contractors or firefighters do you know? The answer is probably, zero!
That never used to be a problem because these “blue-collar” workers had pensions, but now those are all but gone as well.
So, what is the solution to the possible gaps that Social Security will not be able to fill?
How about keeping your money with an industry that has survived every war and economic crisis that we’ve had since the founding of our country? In fact, annuities can be traced back all the way to the Roman Empire.
You can make up the gap that Social Security may cause in your retirement plan by using guaranteed annuities. Especially, using annuities that have guaranteed Income Riders and inflation offset built into them. And there is no better way to learn how to use annuities than by watching my video series, “20% More Income in Retirement.” You can start watching that video series by scrolling to the bottom of this page and clicking the start button.
Then please take the time to reach out to have a short conversation so you can see firsthand what your Atlas Annuity Strategy would look like. Simply click the “Schedule a Call” button located in the top right corner of this screen. You can also reach out to me directly with any questions at 636.926.6500 (please leave a message if I am unable to answer and I will get back to you within 24 hours).
All the best,