
Good News!!! The Social Security Administration released its annual trustees' report last week which noted the trust that funds social security payments for qualifying Americans is now expected to be fully funded until 2035, one year later than last year's projections. At that point, 83% of promised benefits will then be payable. Credit was given to a strong economy, low unemployment, and rising wages.
Still, a deadline is a deadline and while 2035 is later than 2034, either is only about 10 years from now. Of course, the underfunding of social security is something that seemingly every American is aware of and a problem that will have to be solved. Solutions range from raising the retirement age, to raising taxes, to cutting benefits. To date, Congress has shown little interest in solving it, however. And why would they? Who would want to take any of those changes home to voters?
This brings us to our question of just how concerned we should be about social security "running out?" I've heard of some financial planners completely eliminating any social security income from their client's financial plans. But this seems absurd to me, and likely self-serving. Indeed, assuming no social security income for clients would result in draconian cuts to current living standards as savings rates would have to be raised dramatically (which would then likely increase sales commissions and/or management fees for investments sold/managed)! Instead, a somewhat more relaxed approach to the issue seems advisable. Yes, some minor adjustments will likely need to be made. Again, minor. Maybe it's a small increase in payroll taxes, or a small increase in the retirement age, or a small decrease in benefits paid, or a combination of fixes. Regardless, fixing the problem is not hard. In fact, we've faced this problem before and reached a bipartisan solution. I have faith we'll do it again, just probably not anytime soon.
Still, for current financial planning clients under the age of 55, I have started to implement a 5% reduction in social security payments received as part of plan updates. I believe this is a worst case scenario. And even with a 5% reduction, I'm noting only a 1-2% reduction in plan probability of success rates. So, all-in-all, not too bad.
If you're interested in seeing how social security benefit reductions impact your financial plan, feel free to reach out to me here.
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