When President FDR signed the Social Security Act in 1935, he could not have possibly known that life expectancies would mushroom and families would shrink so much in the coming decades. He and his supporters thought the program would be enduring and self-sustaining.
Quite the opposite is proving to be true.
Thanks to medical advances, changing economics, and social transformations, the Social Security Trust created almost 85 years ago is expected to run out of money just before its centennial. In 2022, more payments will be given out to recipients than revenues received. By 2034, the 2017 Social Security Trustee Report projects that the $3 trillion fund will be completely depleted.
The reasons are clear: smaller families mean fewer workers contributing to the fund. Longer lifespans mean more payments sent to more people for more time. The model is unsustainable today and destined to collapse unless significant changes are made. But that’s not likely to happen as it would require Congress to take hugely unpopular positions, such as: raising taxes, changing the retirement eligibility age, and limiting current and future benefits. So far, politicians have not taken such stances, avoiding the issue as it is so threatening to their own careers. Whether they will address it in earnest in the future remains to be seen.
Barring any serious changes, the program will likely end, though how exactly that will occur is unknown. One scenario will entail allowing the fund to gradually wind down. That would require setting a specific birth date where anyone born afterwards would neither pay into the system nor receive any benefits.
If the program dissolves as presently expected, what should you do? The answer depends on your age. If you are already in retirement or nearing it, your payments will not be affected, and you can continue to incorporate Social Security income as part of your retirement budget. But if you are middle-age or younger, expect to receive less than initially promised in your monthly checks when you retire. Set up a retirement account as soon as possible and contribute to it as often and as much as you can. The earlier you start saving, the faster your money will grow thanks to compounding interest. If your employer offers a matching retirement plan, make sure to contribute enough each year to trigger the match. And above all, do not neglect retirement planning. Meet with a trusted and reputable advisor and review your portfolio each year to adjust for market fluctuations and your changing needs.
Depending on either the government or your employer for retirement security is no longer a viable option. Taking charge of your own future is not only advisable, it is necessary to assure a financially stable retirement.
At Silverman Financial, we appreciate today’s challenges and the complexities of planning individual retirement roadmaps. We provide expertise, experience, and personal attention for all of our clients and create flexible, manageable and lasting financial plans.