retirement

It sometimes seems as if we get hit with yet another of those “Social Security is going broke” scares at least once a year. Is that what is really happening? If it is, what can you and I do about it?

Is Social Security Really “Going Broke?

There is absolutely no question that there are serious flaws in the Social Security funding mechanism – or should I say Social Security assumptions? From an actuarial standpoint Social Security has been a developing fiscal train wreck for decades.

The retirement age was set at 65 way back in 1935, when the average person lived to be…about 65. Today, almost 80 years later, the average person is now living to be about 80. That means the average person can expect to collect Social Security benefits for about 15 years. To make matters worse back in the early 1970s, the government created an early retirement provision that allowed people to begin collecting reduced benefits at age 62. That just advanced the train wreck.

There have been a steady series of increases in the Social Security payroll tax since the Carter administration days. Then under the Reagan Administration, a trust fund was established that would direct at least some of the payroll tax into the fund as a reserve against swelling expenditures expected as the Baby-Boom generation would begin entering retirement.

None of the efforts have completely kept up with expenditures, and projections are now showing that the Social Security trust fund will be exhausted sometime in the 2030s. That means 20 years into the future, which will affect the retirement plans of the generations coming up just behind the Baby Boomers.

Other projections have the Medicare trust fund being exhausted as early as 2016. That would be a bigger problem than Social Security going broke, but that’s an entirely different topic that we will not examine here.

Why That Isn’t Likely To Happen

I don’t and never have entirely bought into the idea of Social Security going broke, or that it even can. I’m not being naïve about this; technically speaking, a government program never really goes broke. There are reasons for this…

The Federal government’s budget is different than yours or mine. Businesses have formal balance sheets and individuals have informal ones. It’s a tally of assets minus liabilities equals capital, or net worth. The government – especially the federal government – doesn’t operate that way. It isn’t restrained by budget shortfalls in the same way that you or I or a business could be.

Government borrowing. The government can always borrow money to make Social Security payments. And as we’ve seen in the past few decades, this neatly fit’s the governments M.O. (modus operandi).

Money printing. If the government cannot borrow enough money to meet its bills, it can always print more. It will do this with Social Security failing all else. Governments have done this for thousands of years.

Recent evidence proved that the Roman Empire, under Nero, debased their silver coins by putting iron plugs in them. Coins that were trading based on their silver content, were in fact just 80% silver and 20% iron. This enabled the government to issue more silver coins than they had silver to mint. And so it has been ever since with governments all over the world. And the citizen reaction? They mostly don’t care as long as they get paid.

The US is already “broke” but we keep chugging along . The United States government has been operating with increasing deficit levels for most of the past 40 years. In addition, the level of official national debt is now higher than the country’s total economic output. The US has been spending more money than it earns for at least half a lifetime – what we would call being broke – and yet the checks are still going out. We should expect no change on this front, and that includes the future of Social Security.

No Matter How Social Security Is “Fixed” We’ll All Be Getting Less

Okay, that was all the good news on Social Security. In practical terms, we’re likely to see one or more of several scenarios play out, and none of them will be positive for us:

• Our Social Security benefits will be paid in inflated dollars, meaning we will have less purchasing power.
• Benefits will be gradually reduced, so slowly that we won’t notice it, but we will still end up with less money.
• The retirement age will be increased. This is already happening as the age for collection of full Social Security benefits is being gradually increased from 65 to 67. Expect the age bar to be set higher.
• More Social Security benefits will be taxable. We should expect that 100% of Social Security benefits will be taxable in the not-too-distant future. Right now benefits are only partially taxable above a certain income threshold.

[Find out why it is now harder to garnish Social Security benefits.]

It’s not inconceivable that we will see all four solutions implemented, plus one or two more than we can’t even imagine at this time. All will produce the same result – lower Social Security benefits than we currently anticipate.

What Can We Do About It?

All of that is big picture stuff, and there’s not a whole lot that we can do to change it. But we can change how we react to it, and that’s where our action on this issue has to be concentrated.

Plan on a less lucrative retirement. If you are planning on a full-fledged retirement living in a condo on a golf course, you might want to scale that back to something more modest.

Double your efforts to save for retirement. Whatever percentage of your income you are saving for retirement, plan on consistently increasing it as you get older. Savings will be one of the best protections against reduced Social Security benefits in the future.

Plan on working as long as you can. This doesn’t mean working at a full-time job until the day you drop. But plan to have at least a part-time career or business you can tap as an additional source of income. It can even be something casual or seasonal on an as-needed basis, but be ready with something.

Cut your living expenses as much as you can. Aside from scaling back your retirement lifestyle expectations, plan on cutting your living expenses across-the-board, both now and in retirement. That will mean less income will be needed when you retire, and more money for retirement savings between now and then.

Trust in God. Every one of us came into this world as a helpless baby, and the only reason that we’ve reached the age that we have is because God has had his hand on us. Expect that to continue, even into retirement. In the end, our faith in Jesus Christ is our best and only security. He’s seen us through worse in the past, and he’ll see us through this to.

Can Christians become obsessed with retirement?

No matter what we hear from the media, the sky isn’t falling – at least not as far as Social Security is concerned. However, do anticipate some stormy weather.

What do you think the future of Social Security will be? Do you think that it will be there when you retire?

photo credit: Michael Molenda