Summary/TL;DR
Concerns over the status of social security benefits are commonplace in America, leading many to take benefits “early” to make sure that they get something. Many of the reports that circulate about social security are, however, overblown. There are plenty of things that Congress can do over the next decade to improve the sustainability of the program, and even if nothing is done, the program will still issue benefits as it does now until 2097, only at reduced levels.
Introduction
Every now and then, a new social security “crisis” will emerge upon announcements that the trust fund will “deplete” within the next decade. Consequently, many worry about the status of this program and whether it will be around for the rest of their lives, or if they will receive anything at all. Given the importance of social security income to the financial stability of countless retirees, this uncertainty understandably creates feelings of anxiety. This can culminate in what are objectively very poor financial decisions, such as claiming social security early to “make sure I get something”. Since the consequences of such decisions are far reaching and will impact the lives of those who make them permanently, some clarification on the actual status of social security can go a long way in making sure that any decisions that are made are sound ones.
The Current State of Social Security
As it stands now, the social security trust fund is projected to be depleted by 2034. This does not, however, mean that benefits will stop and no one will receive social security. As of the latest report, if nothing is done in the ten years between now and 2034, then benefits would receive a 20% haircut and could be maintained at least 74% of their current level for the next 75 years. In other words, in the worst-case scenario, current and future social security payments will go down, but now go away, for the next 75 years.
There are, however, many things that can be done between now and then to prevent this from being necessary, effectively sealing the fate of the social security program until 2097, at which point similar decisions will likely need to be made.
Potential “Solutions”
There are plenty of potential “solutions” one can think of that will keep social security in place both for those receiving it and those who have yet to claim. Some of the most popular include:
Raise the retirement age to 70
Reduce cost of living adjustments
Reduce benefits for all future retirees
Raise the social security payroll tax
Raise the social security tax base
Any combination of these solutions are possible in a variety of fashions as well. And remember, even in the unlikely scenario that none of these changes are implemented, social security benefits will still remain operative at 80% of their current level for the next 75 years.
Taken together, the facts that the sustainability of the current system is not in jeopardy and has many potential solutions to remain intact makes the decision to claim benefits early due to the “risk” of missing out on future benefits ill-advised.
Conclusion
While the warnings issued about the abhorrent fiscal habits exercised by Washington and the fragility of our monetary system are well-reasoned, I personally believe they go too far in their claims that the whole thing will go belly-up overnight. The far larger risk, in my opinion, is the erosion of purchasing power that one’s social security benefits will experience due to these policies. In other words, the real risk is not that social security will “go away”, but that it will become less and less valuable over time.
As time proceeds, social security will likely evolve into a program that is completely unrecognizable to us today. These changes, however, are more likely to be gradual than sudden, leaving plenty of time for those who these changes affect to plan for them.
For older and younger individuals alike, the best question to ask when pondering the future of social security and its impact on financial planning is not “what will I do when social security is gone?”, but rather, “how will social security change, and how are these changes likely to affect me?”
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