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Will Social Security Be Around When I Retire?

Carol writes in to ask,

“I’m 53 now, my husband is 56. We’re both hoping to retire shortly after 60. I enjoyed your series on Social Security and when to claim it, but I’m not even sure we can count on it to exist when we get to retirement, much less pay how much we’re currently being promised.

We’re currently planning as if we’ll get nothing and that anything we do end up getting will just be a bonus. Do you think this is wise, or is it just going to postpone our retirement unnecessarily?”

I get questions of this nature frequently, so I thought it might be helpful to share my thoughts. But to be clear, I’m not an expert here. I’m not an economist, and I’m not an expert on politics. This is just an “average joe” sort of opinion.

Are Changes Coming?

In 2010, for the first time since 1983, Social Security expenditures exceeded the program’s non-interest income. And a deficit is projected for 2011 as well. According to the Social Security Administration, without any legislative changes, the Social Security trust fund is expected to be depleted by 2036.

Again, I have no special expertise here, but to me, those numbers sure make it seem likely that cuts are coming in some way, at some point.

It’s Not Economics. It’s Politics.

On the other hand, as GOP candidate Rick Perry’s recent difficulties have shown us, Social Security is still very popular with both parties. And proposing changes to it is politically dangerous.

I think common sense tells us that the more severely a proposed cut would affect people who are reliant on Social Security, the less politically viable that cut would be. In other words, if I had to make a guess, I’d guess that changes would focus more heavily on:

  • People further from retirement, and
  • People with higher incomes.

But will it focus on people who are currently under 60? Under 50? Under 40? I have no idea. Ditto for income — there’s just no way to know what changes to the program will look like. But I do think that the younger you are and the higher your income, the more risk there is that you’ll receive less than what the current system would promise.

It Depends on Your Risk Tolerance

Finally, in addition to your age and income, there’s a third factor at play: Your risk tolerance.

I’m not talking about the “tolerance for portfolio volatility” sort of risk tolerance. I’m talking about your tolerance for having to make real sacrifices. How much of a problem will it be if your income ends up being less than you’d planned on? Are there expenses you can easily cut? Can you go back to work if necessary?

The more flexibility you have with your spending, and the more ability you have to increase your income if necessary, the less danger there is in betting that Social Security will be there, in its current form, when you reach the age at which you could claim benefits.

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  1. Social Security is an “actuarially unsound” system, meaning it cannot be sustained long-term given the demographics– fewer late investors to pay off the early investors at a level they expect. It was a great program for our parents and grandparents, who received significantly more than they paid in and earned in benefits. It will be an ok deal for people 50 or older getting ready to retired, but it will be a lousy deal for our kids and grandkids. Means testing will be implemented at some point so that people who save and plan for retirement or who accumulate significant wealth will have the honor of paying into the system but will not receive any benefits. Already, we’ve seen 0% increases in benefits the past two years. The future of Social Security is ultimately in the hands of politicians (not a very comforting thought to me given their track record on sound financial judgement ). I would advise people to plan their retirements around not receiving Social Security, and whatever the system can provide them will be a pleasant surprise.

  2. At least Rick Perry was honest in his initial push against social security. Sadly, this “you owe me” mentality will probably bankrupt that as well as the country. Unfortunately, in his effort to be more electable he seems to have backtracked.

    The politicians should be pointing out that it is unsustainable and why. They should be educating their constituents instead of playing politicians.

    Most people would have been better off making their own investment decisions with the money that they are putting into the system. Hopefully, we can get to a place where that will happen.

    cd :O)

  3. It’s worth noting that when the trust fund has run out, the SSI taxes (if unchanged) are still capable of paying approximately 75% of the benefits. I don’t think we’ll see SS benefits going to zero.

  4. George,

    Agreed that the chance of SS benefits going to zero is slim-to-none.

    As to the 75% number, I think it’s quite helpful as an overall worst case scenario. But I wouldn’t say it’s impossible for an individual person’s benefits to be less than 75% of what the current system would promise. (That is, some people could continue receiving 100% of their benefits, while other people receive less than 75%.)

  5. I would love to see a sort of privatization of SS occur. I would even be willing to still pay in 1-2% if I could invest the difference myself.

    BTW, Mike, how did you fare on REG?

  6. Matt,

    Thank you for asking. 🙂 I scored a 92. Now just some administrative stuff (which, from what I understand, takes a few months) before I can call myself a CPA.

  7. Nice score! Congratulations! I just passed FAR, which is also my last section! In Oregon, where I live, the State requires supervised experience working under a CPA for a year. Will you be able to satisfy any similar requirements for your State? You don’t work in the accounting field, right?

  8. Nice! Congrats! 😀

    I’m planning on becoming a registered CPA in Illinois (for which there’s no experience requirement) and a licensed CPA in Missouri. For Missouri, there’s a 1-year accounting experience requirement. It has to be verified by a CPA, but the work does not have to have been under a CPA. I don’t think that will be a problem, as I worked as a tax accountant for a little under 2 years prior to running this blog.

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