Will Social Security Last?

ss cardThe simple answer to the headline is yes. The longer answer is that it will soon be under siege and need to evolve over time in order to survive…and it will. Social Security on its current path could run out of funds in 15 years but the problems are inflicted by not addressing its importance, and allowing its funds to be pillaged.

Though not directly correlated, the recent passage of the Tax program, which exacerbates a significant federal deficit, will put pressure on all costs of federal programs and it appears that Social Security, as well as Medicare and Medicaid will be in the cross-hairs of the GOP dominated Congress later in 2018.

On a personal basis, earlier in my career I didn’t have a clue what the FICA deduction was all about on my paycheck. Upon examination I found out that FICA is:

Federal Insurance Contributions Act (FICA) tax is a United States federal payroll (or employment) tax imposed on both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for retirees, the disabled, and children of deceased workers.

When I was younger I figured social security was a tax that gave money to “old people”. I didn’t understand (or care) that my employer matched my contributions—I cared a lot more when I became a business owner. What I did know back then was that I was happy when my salary exceeded the ceiling where money was taken out because my paycheck got larger once it did.

Now that I am wiser (a/k/a an “old people”) I appreciate that social security can provide a modest safety net for older and disabled Americans. The current max payout at Full Retirement age (currently 66 and edging up to 67) is $2,788/month, which equates to $33,456 annually. It’s very hard to live on that money alone, though many Americans are forced too, and most receive far less than the max.

Today’s Millennials have little confidence in the long-term ability of social security to fund future payments. In fact, the majority think it won’t be there years from now when they reach retirement age. And just like me at their age, they spend little time thinking about social security other than being irritated on pay day that a bunch of money was being deducted, and hoping they too can reach the ceiling beyond which Social Security is no longer withheld (set at $128,700 in 2018)

So my advice to Millennials is as follows:

1. Don’t sweat about Social Security—Have confidence that it will be there in some form years from now, even if it is modified, or reduced. Any politician who seeks to eliminate social security will be an ex-politician quickly.

2. However, don’t count on social security to fully fund your retirement. It’s a start at best.

3. Save like hell now since there are few pensions left in corporate America. The good news is that Millennials have an incredible opportunity that time and compounded savings can provide, see: A Penny Saved Is Seven Pennies Earned.

My advice to those nearing Social Security age is as follows:

1. Go online, register, and really look at your statements. Make sure they are correct

2. Hold off taking social security at 62, and even at Full Retirement Age (currently 66 and increasing to 67) if you can. There’s a major financial advantage to holding off until age 70, if you are able—unless you really need the money now and/or have serious illness that may shorten your life expectancy.

3. If you are married and/or divorced, understand the various strategies. They are complex. Take a visit to the social security office and spend time

Reports of the program “running out of money”, while mathematically true based on today’s assumptions, don’t take into consideration the fine tuning that will inevitably happen. So to the issue about whether the program will last….. the answer is: yes, it will. It would be a disaster to allow it collapse. And there are tactics to help stabilize the program and not run out of money in 20 years. Those fine tunings including raising the retirement age, changing the formula on cost of living adjustments, raising the ceiling on amount on which you pay, etc. We will probably see a combo of these adjustments in the future.

The good thing about shining a light on social security is that it makes Americans of ages more deeply consider all the issues related to retirement and do so at an even earlier age. With Americans living longer, retirement planning becomes far more important. Wise men and women consider the issues long before the reality hit them.

I am still in my 20s in my head, though I have no idea who the old guy in the mirror is. But the guy in the mirror has educated himself about longer term financial planning issues. Don’t wait until you are older to do so.

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