If you watch cable financial news networks or read the financial press long enough, you are bound to run into a story that talks about how Social Security is running out of money. You might even find yourself questioning whether Social Security is going to be around when you retire.
I’m not here to say that all is rosy with the Social Security system’s finances. But I also think that some of the naysayers possibly are a bit too pessimistic. Here is a list of truths about Social Security that should help convince pessimists their worst fears might be overblown.
1. Killing Social Security Is Political Suicide
Jim Blankenship is a financial advisor, certified financial planner and the author of “A Social Security Owner’s Manual.” He said numerous polls and surveys show strong support for Social Security across almost all demographic segments of the country. “We all know that no politician worth his salt is going to allow a reduction of benefits to the strongest voting faction,” he said.
2. Changes Can Take a Long Time to Impact Workers
Blankenship pointed out that when the Social Security full retirement age was changed from age 65 to age 67 — the current age for those born in 1960 or later — it was done in a way that was gradual.
“They started with people who were born in 1938 — and these people were 45 years old in 1983 when the law was changed,” he said. “The top age of 67 hit people born in 1960 or later — these folks were 23 and younger at the time.”
3. Social Security Is Not Driving the Country’s Deficit
Mark Miller, a Reuters columnist and noted retirement expert, wrote that Social Security was designed as a “pay-as-you-go program” that is prohibited by law from borrowing. It keeps a level of reserves to pay benefits if cash runs short.
4. An Actuarial Deficit Is Not the Same as the Fund Running Out of Money
Gail Buckner, a certified financial planner and national financial planning spokesperson for Franklin Templeton Investments, wrote that the actuarial deficit expresses shortfall in terms of what it would take to balance the system if only the Social Security tax rate was adjusted.
An increase in the Social Security “tax” is needed to bridge this deficit. Since employers and employees split this tax, the increase would amount to 1.34 percent of employee income, assuming that an increase in the tax was the only fix implemented.
5. This Is Not the First Social Security Crisis
In 1981, projections stated that the fund was so low that within two years, the amounts collected from payroll deductions would not be enough to cover the benefits paid out. Pres. Ronald Reagan and Congress passed legislation that gradually increased the amount of the payroll tax and raised the full retirement age from 65 to 67. Note that Congress did not act on this crisis until there was about two months of solvency left.
6. Social Security Does Not Waste a Ton of Money on Bureaucracy
The Social Security Administration’s overhead operating cost is just 0.8 percent of total expenditures, according to Social Security expert Andy Landis. This amount is about the same as a discounted mutual fund. It is refreshing, no doubt, to hear about any governmental agency that keeps spending within reason.
7. The Long-Term Deficits for Social Security and Medicare Are Decreasing
The most recent trustees report actually showed a slight reduction in the long-term deficits for Social Security and Medicare. As recently as 2009, it was projected that Medicare would be depleted by 2017, according to a Wall Street Journal report released this summer. The most recent report now projects depletion by 2030.
The Social Security disability fund is in far worse shape, however. Current expectations are that reserves will run out in 2016.
8. Social Security Is Not a Ponzi Scheme
The idea that Social Security is a Ponzi scheme is a popular myth among the uninformed, or at least among cynics. Miller wrote that while perpetrators of Ponzi schemes lie to their investors, Social Security has remained transparent about its costs. Trustees produce detailed actuarial reports that are sent to Congress with projected program finances for the next 75 years.
9. Today’s Workers Will Receive Benefits
In June, the Social Security Board of Trustees issued its annual report and concluded that the combined asset reserves of all trust funds are projected to become depleted in 2034. That is one year later than projected in the 2014 report. But even if the fund became depleted in 2034, 79 percent of benefits would still remain payable.
This means that today’s workers will be collecting Social Security, even if the benefit is reduced. Again, these numbers assume no other intervention or measures to shore up the program. Much can happen between now and 2034.
10. The Trust Fund Survived the Financial Crisis
The fact that Social Security reserves held up well during the 2008-09 financial crisis and the ensuing years of economic recovery that followed is encouraging.
Should I Plan on Collecting Social Security?
It is popular to say that Social Security will not be around for today’s workers, especially younger members of the workforce such as those in Generation X and Generation Y. While nobody can accurately forecast the future, reports of the system’s demise seem to be greatly exaggerated.
That said, for financial planning purposes millennials should not consider Social Security in their retirement planning. This is not because there will not be a benefit for them, but rather because it is unclear what the plan structure will be like by the time they retire.