FINANCIAL Social Security: Annual Trustees Report The Social Security Board of Trustees recently published their annual report as to the financial health of the social security pro gram. This report …
Social Security: Annual Trustees Report
The Social Security Board of Trustees recently published their annual report as to the financial health of the social security pro gram. This report seeks to forecast the long-term solvency of the social security programs. Social security is supported by an estimated 175 million people paying payroll taxes while expen- ditures are paid to 65 million beneficiaries of social security 1.
The subject matter of this article will focus on the “Old-Age and Survivors Insurance” (OASI Trust Fund) portion of social security, commonly referred to as Social Security retirement income benefits. The most recent Annual Trustee Report1 finds that the OASI Trust Fund will become depleted in the year 2033, one year sooner than previously forecasted. However, “depleted” doesn’t mean zero. The report estimates that income from payroll taxes will still be adequate to cover 76% of the benefits payable at that time. Another way to say this, if nothing is done to "fix" social security, retirement benefits are forecasted to be cut by 24% in 2033. Social Security faces structural headwinds in that life expectancies are increasing while a wave of “Baby Boomers” are exiting the workforce.
This isn’t shocking news that there are long-term structural issues that need to be addressed with social security. It is this author’s opinion that the rules related to collecting social security retirement income will not substantially change for those in or nearing normal retirement age. However, for younger generations that have time to react and plan for changes within the system, they are likely to see the rule changes as it relates to collecting social security retirement income. Possible solutions to cover the future estimated shortage of social security include increasing normal retirement ages, adjusting taxation of current benefits or taxation of payroll, means testing, or making changes to the inflation indexing formula. The Social Security solvency problem can be met with solutions, but the rules of the game will need to change.
Social Security is not meant to cover all your retirement in- come expenses. The front of your social security benefit esti –
mate statement states that "Social Security benefits are not in tended to be your only source of income when you retire. On average, Social Security will replace about 40 percent of your annual pre-retirement earnings. You will need other savings, investments, pensions, or retirement accounts to live comfortably when you retire”.
The Annual Trustees report provides a good opportunity to remember to prepare in diversifying income sources in retirement. Retirement savings and investments, part-time employment, real estate income, pensions, and annuities may be possible sources of retirement income. The person best to rely on in preparing for a dignified retirement, is looking back at you in the mirror.
Adam Smit is a CERTIFIED FINANCIAL PLANNERTM. His practice emphasizes an investment philosophy of investing in quality while holding for the long-term. Securities offered through LPL Financial. Member FINRA/SIPC. 1 – www.ssa.gov/news/press/releases/2021/#8-2021-2
BY ADAM SMIT