Guido's Weekend Financial Wisdom: The Future of Social Security
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Evan R. Guido
The Social Security Board of Trustees recently released its annual report on the health of the Social Security Trust Fund, and its findings are bleak. The board projects that if current levels of revenues and benefits remain constant, the entire trust fund will be depleted in 16 years. This month’s Wealth Management Insights outlines the forecast for Social Security and how it might affect your retirement plan.
The Social Security Trust Fund faces significant challenges in making scheduled benefit payments, which will impact all current and future Social Security beneficiaries.
For the first time since 1982, the total Social Security benefits paid in 2018 will exceed the investment income of the trust fund and the tax revenue it collects. If no changes to the revenue or benefits are made, the difference will begin to be paid from the assets of the fund itself.
This deficit will continue to grow, and as a result, the board projects that the entire fund will be depleted in 2034.
After 2034, Social Security benefits will still be paid but at a reduced rate, supported only by ongoing tax revenue. The board projects that tax revenue alone is sufficient to pay just 77% of scheduled benefits after 2034.
The Board of Trustees Report proposes solutions to make the trust fund solvent over the next 75 years. Not surprisingly, these solutions require an increase in taxes, a reduction of benefits or both.
If a solution could be enacted immediately, the Social Security Trust Fund could be made solvent with either a 2.78% payroll tax increase or a 17% reduction in the benefits being paid.
If a solution is pushed off until the fund is depleted in 2034, the payroll tax would have to increase by nearly 4%, or the benefits paid would be reduced by 23%.
While the pain to both taxpayers and Social Security beneficiaries increases the longer Congress waits to enact a solution, it’s clear that the status quo in Social Security is not tenable in the long term.
No matter what the future of Social Security holds, there are ways to manage its role and impact on your retirement plan.
Determining when you start taking benefits could have a big impact on your total payout over time.
If you are married and your spouse has their own Social Security account, you can stagger the ages at which you each start taking payments to maximize income when you may need it most.
Most importantly, Social Security benefits should only be one part of an overall retirement plan.
About Evan:
Evan heads a wealth management team at Baird in Sarasota, FL focused on retirement planning. Evan entered the investment business in 2002. His team holds a series of educational workshops in the community and is involved with numerous clubs and charitable organizations in the community. Evan was born in St. Petersburg Florida, attended the University of Alaska Anchorage and has 3 beautiful children with his wife Brittany.
Evan Guido is a Financial Advisor with Robert W. Baird & Co. The content of this article was produced and provided by Broadridge Investor Communication Solutions, Inc. Copyright 2015. Baird does not offer tax or legal advice.
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