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Is Social Security Going Bankrupt?

You may have seen alarming headlines predicting that Social Security will run out of money by 2035. With around 10,000 baby boomers retiring daily, the system has been under significant pressure for years and it's understandable to wonder if Social Security is heading toward insolvency. Let’s break it down and understand what’s really going on.

What’s Actually Happening

It’s important to understand what the media means when they say the system is going broke by 2035.

During your working years, you contributed to the Social Security system in the form of payroll taxes. In fact, 6.2% of your wages went to pay for Social Security and another 2.45% went to pay for Medicare and Disability. And your employer paid the same amount into the system to. For decades, payroll taxes built up a surplus of money in the Social Security trust.

With so many people collecting a benefit, the Social Security trust is going to be depleted by 2035. While the Social Security trustees predict the reserve fund will be depleted by 2035, the situation isn't as dire as it might seem. Even if Congress doesn't act, payroll taxes will still cover about 83% of scheduled benefits. Looking further out, by 2098, these taxes are projected to cover 73% of benefits. This means that while the system faces challenges, it is not on the brink of disappearing.

Understanding Potential Solutions

Several potential solutions could extend the solvency of Social Security:

Increasing the Retirement Age

This has been done before. In the 1980s, full retirement age was gradually increased from 65 to 67. With life expectancies rising, pushing the retirement age out a few more years could help balance the system. This approach reflects the changing demographic landscape, where people are living longer and healthier lives. The system was designed in the 1940’s when people would retire and then die at age 65. It was never intended to make payments to retirees for 30 years. Adjusting the age that retirees can claim a benefit only makes sense given how long people are living these days.

Raising Payroll Taxes

Currently, 7.65% of workers' earnings go towards payroll taxes, with 6.2% funding Social Security. Increasing this by even a small amount, such as to 6.3%, could significantly extend the trust fund’s life. Additionally, raising the taxable wage base above the current limit of $168,600 could bring more funds into the system. These adjustments could be phased in gradually to minimize the impact on workers and employers.

Adjusting Cost-of-Living Adjustments (COLAs)

By modifying how COLAs are calculated, the growth of benefits could be slowed, helping to align expenditures more closely with revenues. This could involve using a different inflation measure that grows more slowly than the current one.

Political Realities

Given the importance of Social Security, it's hard to imagine politicians allowing it to fail. Many retirees are diligent voters, and angering this group would be politically damaging. It’s likely that reforms will be made, though perhaps not until a crisis is imminent. Historically, Social Security has enjoyed broad bipartisan support, and major changes often occur during moments of clear fiscal urgency.

The Importance of Social Security

Social Security is vital, providing significant income for many retirees. Nearly half of senior citizens rely on it for 50% or more of their income, and for one in five, it accounts for 90% of their income. Without it, millions of adults and children would fall below the poverty line. The program also plays a crucial role in supporting disabled individuals and surviving family members, making it a cornerstone of the social safety net. Here is a useful fact sheet created by the Social Security Administration (SSA) to help us better understand the relevant statistics.

Expert Opinions

Jason Fichtner, chief economist at the Bipartisan Policy Center, emphasizes the need for bipartisan reforms to avoid automatic benefit cuts. He stresses that proactive measures are necessary to ensure the program's long-term viability. Nancy Altman, president of Social Security Works, notes that strong job growth and rising wages have slightly improved Social Security’s outlook. She highlights that despite the challenges, Social Security remains a robust and critical program that continues to support millions of Americans.

What This Means for You

At Seaside Wealth Management, we understand that these projections may cause concern. Our goal is to help you navigate these uncertainties with confidence and peace of mind. Here’s how we can assist:

Comprehensive Financial Planning

We take a holistic approach, ensuring you have a reliable income stream regardless of Social Security's future. By considering all aspects of your financial life, we help create a plan that adapts to changing circumstances and provides stability.

Education and Guidance

We educate you about the implications of these projections and explore strategies to safeguard your retirement. Knowledge is power, and we aim to empower you with the information you need to make informed decisions about your financial future.

Here's some Social Security content we've created to help you get the most out of your benefits based on your unique situation:

Proactive Strategies

We develop diversified investment portfolios, tax planning, and alternative income sources to mitigate the risk of reduced benefits. Our approach includes regular reviews and adjustments to your plan, ensuring it remains aligned with your goals and the evolving economic landscape.

Peace of Mind

Our clients consistently praise the peace of mind we provide through our comprehensive services, detailed reporting, and regular meetings. We are committed to being accessible and responsive, ensuring you feel supported and informed every step of the way.

Moving Forward Together

The projections for Social Security highlight the importance of a robust financial plan. At Seaside Wealth Management, we are committed to helping you achieve your financial goals and secure a comfortable retirement. By staying informed and proactive, we can navigate these challenges together and ensure your financial future remains bright.

We are here to support you through these uncertain times. It’s a pleasure to partner with you on your journey. Our commitment is to provide you with the guidance and resources needed to face the future with confidence and clarity. Together, we can make informed decisions that will help you achieve your financial aspirations, regardless of the uncertainties surrounding Social Security.

Answering Your Social Security Questions & Concerns

In this Q&A video, Brad and Matt answer your most pressing questions about Social Security benefits, directly from our audience. They start by addressing the ongoing debate about the best age to begin taking Social Security benefits: Should you claim at 62, wait until your full retirement age, or delay until 70? Brad and Matt dive deep into the pros and cons of each option, helping you understand the financial and lifestyle implications of your decision.

This commentary reflects the personal opinions, viewpoints and analyses of the Seaside Wealth Management, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Seaside Wealth Management, Inc. or performance returns of any Seaside Wealth Management, Inc. client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Seaside Wealth Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.