The Big (Overblown) Social Security Scare
BY: Jeff Supple
How many times have we heard that Social Security is running out of money, or is broke altogether? Too many to count (or in the 100+ million range, if you measure by Google search results).
The reality is that, for years, Social Security has taken in more than it’s paid out. This is because Social Security retirement benefits are mostly funded by payroll taxes (that’s what FICA [Federal Insurance Contributions Act] is on your paychecks, for those of you keeping score at home).
As more and more Baby Boomers retire and aren’t fully replaced, there will continue to be a strain to the surplus that has built up over the years. The surplus is what is in jeopardy, not Social Security itself. If nothing is done, the surplus (i.e., the Old-Age & Survivors Insurance (OASI) Trust Fund) is due to run out in 2033. At this time, Social Security will only be able to pay out 78% of promised benefits (according to the Center on Budget and Policy Priorities).
Washington can and will act. Social Security’s problems are known, as are the solutions. Political will stands in the way. A combination of raising payroll taxes, the retirement age, and taxes on Social Security is possible, but not very popular, politically speaking. The problem will be kicked down the road before a major overhaul is completed to ensure Social Security’s viability (the last major overhaul was done in 1983).
Although the fear of Social Security going broke has had some positive effects (generations are saving more for retirement because they don’t think they can rely on SS being there), there are also negative implications. Like making poor investment decisions based on overblown concerns stoked by the media/social media, many individuals are basing their Social Security-filing strategy on fear as opposed to the context of their overall financial picture. Too often, individuals are filing for benefits early, without thinking how it impacts a surviving spouse, their taxes, etc.
When to file for Social Security should not be a one-size-fits-all proposition. Many factors come in to play, and your decision should not be made in a vacuum and certainly not based on a headline.
If you have any questions concerning your plans to file for Social Security, or if you'd like to address anything related to your retirement preparedness, please reach out to me directly at (608) 849-2706, or to any member of our Wealth Management team.