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Social Security Benefits - Here Today, Gone Tomorrow?


By Rashida Lilani, CFP® CMFC

This much debated, and sadly much needed benefit also happens to be one of the least understood government programs.  But before we discuss benefits and the future of Social Security, let’s first look at some history. 

The Social Security Act was signed into law by President Franklin D. Roosevelt in 1935.  It was meant to be a Social Insurance program (as opposed to a social welfare program).  What that means is that it was never intended to fully replace earned income, but to simply promote the work ethic and dignity of the workers and their families.

Today, social security includes benefits for retired workers aged 62 and older, benefits for a disabled worker before full retirement age, benefits for the dependent family members of a retired or disabled worker, benefits for the dependent survivors of a deceased worker and Medicare, which pays for retired workers age 65 or older, certain disabled persons and their dependents.  Workers and their families, except for some public and railroad workers, with at least 40 quarters of credit are eligible for at least some benefit.

One of the factors ailing the Social Security program is the lack of ongoing adjustments that should have been implemented to account for several changing factors, one of them being longer life spans of retired workers.  According to the Social Security Administration (SSA), there are currently over 60 million Americans collecting some sort of retirement, disability or death benefit.  It is a pay-as-you-go program as workers’ today are paying for the benefits of current retirees. The problem is expected to get worse as longer life spans along with a reduced birth rate will have more people collecting benefits than contributing to the system.

According to  the Social Security Board of Trustees report on ssa.gov, income to the combined Old-Age and Survivors Insurance, and Disability Insurance (OASDI)  Trust Fund was $840 billion in 2012 while total expenses paid  from the combined OASDI Trust Fund were $786 billion. The Trust as of 2012 has a balance of $2.73 trillion. Hence there is currently a net excess of funds.  If congress does nothing (highly unlikely), then this trust will be depleted by 2033 and benefits from then on will be reduced by 23%.

Some “fixes” have been proposed but one can  be assured, the process is going to be contentious to say the least, as Congress will more than likely debate over each option until the eleventh hour.  Some of the proposed solutions include raising the ceiling on wages currently subject to payroll tax ($113,700 for 2013), increase the current payroll tax (currently 6.2% paid by employee and an equal amount matched by employer), increasing normal retirement age (NRA) as well as some more controversial moves such as allowing employees to invest their Social Security taxes in their own accounts and reducing benefits for wealthier individuals.  But one thing is for certain and agreed upon by all, something needs to be done, and done relatively soon.

Understandably, there is anxiety surrounding the matter of Social Security benefits.  And thanks to our friends in the media, it has been deemed all sorts of things including being completely insolvent to even being compared to some sort of a Ponzi scheme. 

Regardless of the uncertainty facing it, Social Security remains one of the very few life time, inflation-adjusted streams of income available to retirees today. Granted, there are remedies that will have to be implemented for the program to remain sustainable and they will not come without the cost of several and perhaps even severe measures.

What can you do? First of, it is highly recommended that you review your Social Security statement carefully for accuracy, especially your earnings information over the years.  This should be done every year as your statement gets updated as benefits can erroneously be changed and never detected.  You can access your statement online at ssa.gov. 

While uncertainty of these future benefits can be unnerving and can make planning for the future difficult and challenging, it’s best to accumulate other savings to offset any shortcomings, if any. Once again, social security was meant to be a supplement to one’s retirement plan, not the retirement plan.  Utilize tax favored investment vehicles such as   IRAs, Roth IRAs or employer sponsored plans such as 401(k)s or 403(b)s.  In doing so, you will also benefit from the deferral of taxation, if applicable.

And stay tuned for a showdown in Congress as they now battle over feasible solutions to the Social Security conundrum… until the cows come home.

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