By J. David Principe, CFP®, Senior Advisor
A general air of pessimism regarding the stability of our Social Security system has been ongoing for many years. Is the skepticism still warranted?
If you’ve been a staunch Social Security pessimist, it may be time to take a fresh look at the state of Social Security, based on this year’s annual report from the Social Security Board of Trustees. Our take: While continued attention is warranted to shore up the system, its future may not be as inexorably bleak as some may assume.
An in-depth analysis of the board’s annual report calls for some fairly serious number-crunching, beyond the pale of the average man or woman on the street. Fortunately, subject matter experts Andy Landis and Michael Kitces have offered us their takes on the information, to help us make sense of the abundant data.
When Andy Landis Speaks on Social Security …
Landis is a seasoned author, speaker and consultant specializing in Social Security, Medicare and retirement planning. When he speaks, or writes, we tend to listen. I don’t know that we’re ready to start whistling happy tunes and urging investors to retire early based on expected payouts, but we were heartened by Landis’ MarketWatch review of the aforementioned annual report, and his explanation on why Social Security is far from going broke.
He also addresses many of the other common gripes we hear (and, admittedly, have been known to make ourselves in surly moods) lambasting Social Security as a leaky, creaky, cash cow being regularly milked for bureaucratic overspending. Not necessarily so, contends Landis, who describes how its operating expenses have been surprisingly efficient, and that it has been closer to holding its own than is commonly reported (due to often unaccounted-for investment gains).
In his Nerd’s Eye View summary, financial blogger Kitces (whose credentials call for a dedicated page of their own just to present them all) offers his synopsis of some of the key take-homes from Landis’ post. He notes that, by 2033, Social Security’s trust fund account balance is projected to be depleted. However, he observes:
“Even at that point , Social Security will still be able to pay 77% of its scheduled payments for most of the remainder of the century just from ongoing payroll taxes. And notably, this is far from ‘the worst’ that Social Security has faced; in the late 1970s and early 1980s, Social Security was also running deficits that were depleting the trust fund, with ‘insolvency’ looming in July of 1983, and that’s what spurred the Social Security reforms in April of that year that have carried us forward ever since.”
In fact, he explains that the 1983 reforms have remained on track as planned: “In 1983 the reforms were anticipated to provide for another 50 years of full solvency, which means the trust fund depletion projected for 2033 is right on track after 30 years!”
“But wait,” you may be saying, “doesn’t that mean we’re still heading for a cliff?” Not unless zero action is taken between now and then. In considering what can be done during the next decade-plus, Landis observes, “There are dozens of proposals, basically boiling down to cutting expenses and/or increasing revenue.”
In short, there are certainly plenty of reasons remaining to fret about the state of Social Security if you’d like. But a more productive approach may be to assume that this cup remains at least half full, at least for now. You may be better off in mind and money to channel your energy to working with SageBroadview or your advisor of choice on your own retirement plans.
About J. David Principe, CFP® – As a SageBroadview Senior Advisor since 2007, David works closely with many of our clients, building personal relationships during their financial life planning. He also assists with technical support, data and analytical research, and overall practice management. In addition to his credentials and professional experience, David is a member and proponent of the National Association of Personal Financial Advisors (NAPFA). He holds a bachelor’s degree in English from the University of Colorado at Boulder.
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