For most Americans, understanding how much we will need to save for a comfortable retirement is an important priority – certainly by the time we reach our 50s. Helping our clients to have a grasp of this is an important value-add from Pinnacle Trust. As we go through the process of cash flow projections for our clients – both to and through retirement, one of the most often asked questions involves the future viability of Social Security.
This is a valid concern. According to a recent Gallup survey, fifty-one percent of adults ages 50 to 64 said they worry “a great deal” about Social Security’s stability. One-third of adults ages 18 to 29 said they were worried, too.
According to the 2019 annual report of the Social Security Board of Trustees, the trust funds that disburse retirement, disability and other Social Security benefits will be depleted by 2035. Simply put, if no changes are made, Social Security will only be able to pay out what it takes in beginning in 2035. This means only about 80% of the benefits currently scheduled will be available for retired and disabled workers. The reason? Most of Social Security’s funding comes from the Social Security tax paid on most American workers’ earnings (currently 6.2% from workers and another 6.2% from employers). Benefit payments have continued to grow as retired Baby Boomers live longer than once projected in Social Security’s infancy. And lower birth rates in subsequent generations mean fewer people paying into the system.
Despite these projected shortfalls, politicians have been reluctant to attempt to fix Social Security. Any abrupt changes would undoubtedly be political suicide, so this has continued to be kicked down the road. Eventually, however, Congress will probably raise the payroll tax as well as the full retirement age (as they did in 1983). This means you will have to wait longer to get your full benefits. Congress could also elect to change the way benefits are adjusted for inflation every year.
So don’t worry about Social Security going away any time soon. But its uncertainty is another reason why it makes sense to plan for your retirement now. We’re here to help. – Stacey
Stacey Wall serves as Chief Executive Officer at Pinnacle Trust. You can reach him by emailing him at firstname.lastname@example.org or by calling the office at 601-957-0323.