Social Security InsecuritySubmitted by Miller Financial Group, Inc on June 12th, 2017
Social Security Insecurity
“Well, I’ve got my Social Security…” I have often heard people say. The problem is that some future retirees really don’t seem to be thinking about it as a supplement to their retirement income. It’s a misconception that reflects the somewhat wishful thinking that maybe it will be enough to see them through their retirement years. For most, unfortunately it will not.
Your Social Security benefit was never intended to fully fund your retirement. The money you may have paid into the system all those years was only meant as a safety net to supplement your other retirement income sources. The system was not set up to pay your way through retirement or to be your caretaker, freeing you of responsibility. In addition, with the changes looming on the horizon, it may become somewhat of an even less dependable source for retirement income depending upon your situation.
People are living longer today than the founders of the Social Security system in the 1930s probably ever imagined. Life expectancy has increased dramatically since the Great Depression era when the system was constructed. Centenarians, those who are 100 years of age or older, were once a rarity. Now they are much more common and medical advances hold out the prospect that people will continue to live increasingly longer.
The implications are clear enough, and that is why the Social Security system is in peril and why we hear those perennial proposals on how it should be fixed. Politicians have made adjustments in the past— some benefits have been subjected to taxation, for example—but those changes have only postponed dealing with the fundamental issue, which is fewer workers supporting far more retirees who will collect benefits longer than ever before.
The baby boomers built up a large reserve with their contributions, but as they move into retirement, that reserve is dwindling. Nonetheless, if you are age sixty or older today, I believe you can expect to receive all, or the vast majority, of your benefits. Even without changes, according to a 2011 study, the Government Accounting Office expects the system to be able to pay full benefits until 2033, according to the latest projection. After that, the projections show the system would be able to pay out only about 75 percent of the benefits due—that is, unless Congress acts to significantly shore up the system.
The big question is what those changes might be. One proposal has been to raise the normal retirement age. This would not be the first time that Congress has taken that action. It used to be age sixty‐five, and now it is either sixty‐six or sixty‐seven, or a number in between, depending upon your date of birth. It is possible that we could see that rise to perhaps age seventy, or older, for future retirees!
Congress in the past has also raised the threshold level for how much you can earn in income before your Social Security benefit is subjected to tax. This is another method to increase fiscal income. Until 1984, no benefits were taxed. Currently, if a couple filing a joint return earns more than $32,000, half the benefits could be taxed. If the couple’s income exceeds $44,000, up to 85 percent of the benefits could be taxed.
Other suggestions for amending the system have been to use a different means of figuring and applying the cost‐of‐living adjustments, meaning the system would put a portion of its securities into the open market. That proposal has not gained much traction, and I don’t foresee it happening anytime soon.
One of the popular proposals is to raise the Social Security earnings that are subject to tax. For 2017, only the first $118,500 of a worker’s earnings is subject to Social Security tax. Some have suggested raising that significantly in the years ahead or even taxing all earnings with no limit.
From time to time, we also hear proposals for means testing to distribute Social Security benefits. Benefits would be either increased or restricted based upon your current level of earnings and assets, regardless of what you may have or have not paid into the system.
One way or another, I believe that the system will be sustained. Too many people have too big a stake in it for the government not to take steps to address the projected deficiencies. Even if no additional reforms are made, it will be fifteen or twenty years before the system needs to cut back on benefits. If action is taken soon, we should be able to expect full benefits to persist considerably longer than that.
Daniel S. Miller is an investment adviser representative of, and securities and advisory services are offered through, USA Financial Securities Corp. (Member FINRA/SIPC). USA Financial Securities is a registered investment adviser located at 6020 E Fulton St., Ada, MI 49301. Miller Financial Group is not affiliated with USA Financial Securities.