Will your Social Security benefits be there when you retire?

Posted By: Jeremy Reif
Thu, Sep 26, 2019

Social Security should be the topic of conversation for everyone approaching the social security retirement benefit age.  Will Social Security be there in the same way as it exists for retirees now?

The government knows there is a problem with the retirement plan that they created.  Twelve years ago, I wrote a very detailed article about Social Security’s financial problems that have yet to be solved.  No one in government wants to be tasked with taking care of this, as they have their own agenda. 

In one form or another, pensions have been around for thousands of years.  Social Security is considered to be a form of pension that is provided by the government, which was brought to fruition in 1935 by President Roosevelt.  The concept of government pensions was not developed here in the US, but rather we took ideas from other countries and made Social Security our own plan.  The difference between now and then is people are living much longer and the dollar amounts to support the average retirement of twenty-five years or more is now taking their toll on the Social Security System.

Let’s explore some of the problems a little deeper.  The average life expectancy in 1935 was close to 61.  The average life expectancy today is in the upper 70’s or low 80’s.  Social Security was intended to start paying benefits at age 65.  This is politics at its finest.  The government tells citizens about this great benefit but fails to mention the majority of people would not ever be able to collect on it.  It worked brilliantly early on.  In fact, it worked too well.  The government had the authority to collect taxes, pay virtually nothing in benefits, now had a large pool of money that was not being used.

Notice the word “had” in the previous paragraph.  Balancing the budget has never been a strength for the government.  As the government increased their spending, they found no reason not to use this growing pot of Social Security money.  Secretly using our hard-earned money and then basically putting together a promissory note to pay the money back.  When I originally wrote about this topic, the only thing the government would’ve needed to do was stop spending the surplus money on things outside of Social Security benefits and invest the difference.  Even though I wrote about this a long time ago it was much too late to close that gap.  What I mean by this is that the government was spending far too much to back off.  Now the government is paying more in Social Security than they are bringing in on taxes.

Now it’s left to an educated guess as to what the government will do next.  My prediction is four things will happen.

  1. Increase taxes - Most likely to support the Social Security program, the government will continue to find ways to increase taxes.  Most people do not realize that when Social Security was originally stated that the benefits were supposed to be tax-free, this is not the case is today.  In 2016, social security federally can be taxed as much as 85% as ordinary income.  The government is slowly changing rules to gradually increase the tax specifically targeting high-income earners, businesses, and business owners.  The next logical step would be to increase it on the rest of the workforce that did not fit the criteria mentioned previously.  

  1. No cost of living adjustments - This is the one area that would be the least likely idea to be used.  However, we have seen 0% increases in the last few years.  No adjustments or minimal adjustments to social security.  They could just use a lower cost of living factor that is lower than 2% as their standard increase rates.  This would be a difficult decision as it puts more stress on people who have no money except for social security to pay their bills.  Then this would put more stress on other governmental assistant programs that need financial help of their own already.

  1. Increase social security retirement age again - This is a simple fix.  The original social security plan had full retirement at age 65 and life expectancy was just short of this.  They could change the full retirement age to the early ’80s to start building up a pot of money again.  However, no one in their right mind would ever allow this to happen as our government clearly can’t be trusted to manage it wisely.  So it would most likely be somewhere in the ’70s.

  1. Change benefits - Looking back historically about how the government makes changes; typically they publically state a date as to when the change will occur.  Telling us, that everything before the date stays the same and outlining the new rules for after that date.  This is how the government operated as they updated their filing and suspended rules on social security in 2015.  I would guess that the government will eventually say, after this date, here are the new social security benefits.  When I look at my current statement it already has a disclaimer, “The law governing benefit amounts may change because by, 2034, the payroll taxes collected will enough to pay only about 79% of scheduled benefits.”   Eighteen years from now, there is going to be a large financial crisis on our hands. 

The government will try not to abandon the Social Security program until it is failing and beyond any repair.  At first, the government will likely try to modify the existing program.  Social Security provides a lot of government jobs.  Social Security also brings in a lot of tax revenue that the government can spend.  There is no way that the government would want people to opt-out of social security and self insure if they can control it.

The average citizen does not plan for retirement because they feel that the government will provide for them.  Many retirees depend on their social security and it might be their only source of income.  People more than 10 years away from social security age may want to consider that they may only get a portion of what is shown on their statements and that people further out may get virtually nothing or at least should start planning this way.

About Jeremy Reif, CRPS®
Jeremy Reif is an independent financial advisor with more than a decade of experience in the financial services industry. He is also the owner of Point Wealth, LLC, an independent financial planning and investment management firm. With advanced credentials and training in retirement planning and financial planning, Jeremy focuses on helping individuals and families pursue financial independence. Regardless of the services he’s providing, he focuses on talking openly about financial planning, the industry, common questions about retirement planning, and more to help everyday investors gain more confidence in their financial opportunities. Based in Wausau, Wisconsin, Jeremy serves clients throughout the state and can work virtually with clients throughout the country. To learn more, visit http://pointwealthmanagement.com and connect with Jeremy on LinkedIn.
Advisory services are offered through Point Wealth, LLC, an Investment Advisor in the State of WI. Whenever you invest, you are at risk of loss of principal as the market fluctuates. Past performance is not indicative of future results. Purchases are subject to suitability. This requires a review of an investor’s objective, risk tolerance, and time horizons. Investing always involves risk and possible loss of capital.
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