Is Social Security Solvent?

Is the Social Security Trust Fund Solvent?  According to the Social Security Administration 62.5 million individuals received a benefit from Social Security in May 2013.  Over 20% of the population receives benefits from this program established in 1935.  With so many retirees depending on Social Security as a source of retirement income, its importance and sustainability cannot be overstated.

The Social Security Trust fund is managed by The Department of Treasury.  Money is received by the fund through payroll taxes, taxes on pension and disability benefits, interest earnings and other sources.  Each year a report is released on the financial status of Social Security and Medicare.  In the past, there has been a surplus of funds in these programs.  However, a few years ago a deficit has started.  This deficit is also expect to average $75 billion each fiscal year from 2013-2018.  This deficit is causing Congress to issue more debt just to meet Social Security’s obligations.

It is clear that the current path that Social Security is currently on is not sustainable in the long run and some actions are needed to preserve it.  The chances of the government allowing the program to fail are very low, but in turn there could be a point to where failure is on the horizon there may need to be some drastic changes.  One possibility is to continue to raise the retirement age, maybe as high as 69 or 70.  A second option is to increase payroll taxes by taxing wages over $113,700, the current earnings limit.  A third is to limit the cost-of-living annual adjustments that recipients receive frequently.  Another option is to reduce benefits on those whose lifetime wages are above the national average.

The SSA also needs to improve on its forecasting technology by adding tools to help its actuaries implement more formalized procedures to better estimate the life expectancy.

Some experts are urging retirees to delay their Social Security benefits to allow for more options and higher monthly payments.  That sounds great up front, but what is to happen if one delays and the fund isn’t as strong as it once was and the benefit is decreased.  It may be time to look at other options that will provide a guaranteed lifetime income stream during retirement such as income annuities or other investments that are back by other sources rather than the government.

As more and more baby boomers continue to retire and our economy continues on the slow growth pattern it is currently on, the strain continues to grow on Social Security.  Some retirement experts are advising retirees to re-prioritize their retirement income vehicles and move Social Security down the ladder.  Therefore they won’t feel the impact as much if something were to happen.  The longer Congress ignores the subject, the more pain retirees will endure when the issue is addressed and changes are made.

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