September 1, 2021
The Future of Social Security
By Vance Albitz, CFP®
This video recaps excerpts from a shared experience with one of our clients.
Jim: “Let me also ask you then, do you have any thoughts about the likelihood of Social Security being there for the rest of our lives or our kids?”
Vance: “It’s definitely something that is talked about a lot. And my thought would be: I don’t believe Social Security is going away, but I think without a question, they’re going to have to make some major changes to the current system. I want to explain my thought process behind that belief. It involves a little bit of a history lesson.
Social Security was actually started by Franklin Roosevelt during the Great Depression. It was part of the New Deal, and it was intended to supplement the income for people who were retired and people who were unemployed from the 1930’s. Over the course of the next 40 or 50 years, that program ballooned, and the payouts increased. They started covering disabilities. They had a survivor benefit to spouses and children. They added Medicare and Medicaid.
The problem was it was initially intended to supplement retirement and unemployment, but over time it became something that Americans depended on as their major source of income. So let’s fast forward to the 1980’s. The payouts were still really high, but they increased the Social Security tax. So as much as was going out, even more money was coming in. And that was good, because then they started building up this Social Security trust fund. The trust fund was growing with tax money coming in, but it was also being invested in treasury bonds. So it was compounding and there was interest, and this fund continued to grow. There has been a major shift, and the major shift is that more people are retiring and more people are living longer; so the payouts have actually exceeded the amount of money coming in.
You look out over the next decade, this trend is going to continue in a big way. Now, if you talk to some financial experts, some universities who have done studies, they actually predict that this trust fund will actually be depleted by 2035; maybe even sooner. So that’s not good. Now, what adjustments can they make? Well, the two obvious ones would be to increase taxes that would bring in more money to Social Security or to decrease some of the payouts. They’ve talked about other things, like raising the retirement age, possibly shifting around the government budget, printing more money to pay for these programs. They’ve even talked about changing the investment strategy of the trust fund, investing more in stocks rather than just treasury bonds. That obviously can have unintended consequences with the volatility of the stock market.
To go back to the original question, will Social Security go away? I personally don’t think it will, but I think (just like anything else) they are going to have to make adjustments going forward.”
This information may not be relied on for the purpose of determining your social security benefits or eligibility. You are encouraged to seek advice from your own tax or legal professional.