For those of you outside the U.S. or who don’t know, Social security was founded by President Franklin D. Roosevelt in 1935. It has undergone some changes since then, but is essentially a government assistance program to provide retirement, disability, and survivor benefits to beneficiaries funded by U.S. tax dollars.
The Social Security Statement
We just received Linda’s Social Security Statement containing her earnings record and estimated benefits. Within the envelope they included a pamphlet titled “What young workers should know about Social Security and saving.” I am not planning on Social Security being around when I reach retirement age, because you can only go so long spending $2 when you are only making $1. With all the Baby Boomers retiring, there is just going to be a lot more money going out than what is being contributed. You hear concerns about this all the time, but I was interested to find out what the Social Security Administration had to say about the future of the program.
From the Pamphlet…
Will Social Security still be around when I retire?
Yes. The Social Security taxes you now pay go into the Social Security Trust Funds and are used to pay benefits to current beneficiaries. The Social Security Board of Trustees now estimates that based on current law… In 2017 (it) will begin paying more benefits than it collects in taxes and… in 2041, the Trust Funds will be depleted (emphasis added). Because people are living longer and the birth rate is low, the ratio of workers to beneficiaries is falling. Therefore, the taxes that are paid by workers will not be enough to pay the full benefit amounts scheduled.
… Even if modifications to the program are not made, there would still be enough funds in 2041 from taxes paid by workers to pay about $780 for every $1000 in benefits scheduled.
Wishful thinking?
While I am pleased that the government is being honest about challenges ahead for the Social Security program, I think their estimates are very conservative – if not wishful thinking. The way healthcare technology is advancing we will probably be able to keep everyone alive to 100+ in a couple decades – whether they like it or not! 
I would be surprised to an increase in our birth rate, and I think seeing a continuing decrease is much more likely. So with both ends extending out, we will likely have a much larger disparity of cash inflows vs. outflows than we do today.
But knowing our government, they will try to find a way to make it work. They are going to have to pay the piper eventually, but no one seems to know when that day will come. Assuming they can always find more money to borrow (a dangerous assumption IMO) things will work out fine and we will all get our Social Security checks each month.
Depending on Social Security for retirement
If you can’t tell, I do not want to be in a position where I have to depend on the government to be able to retire. When ever people ask me about it, I always tell them the same thing – Plan for your retirement like Social Security will not exist. If it is still around, then you will have a nice little bonus. But a lot can change in a decade or two and in the case of Social Security, I don’t think it will be in their benefit.
What about you? Is Social Security part of your retirement plans?
Related posts:
- No COLA increase in Social Security this year
- Planning for retirement without Social Security
- Government and Finances
- What is a Roth 401(k)? 6 benefits you might care about…
- Is the 401k a bad idea?
- What is an IRA?
- Retirement Plans (Part 2) – IRAs: Roth vs Traditional
- What are Charitable Gift Annuities and how do they work?
{ 2 trackbacks }
{ 11 comments… read them below or add one }
Either way, that’s why it is very important to begin saving for retirement as early as possible. Take matters into your own hand, don’t rely on the government.
This post is a perfect example of why retirement planning is so difficult for younger people – there are so many unknown variables. My approach has been to control what I know I can and that is (1) the % of my income that contribute (2) my asset allocation (2) my investment vehicle (Roth IRA). From there everything else is out of my hands.
As for Social Security it isn’t making me feel too secure these days.
I think it will be there in some form, but probably not as substantial as it is now. It’s really the bedrock of all government programs, take it away and everything else is suspect. It will be there in some stripped down version at least, but nothing worth relying on.
That really does put the burden of saving back on us in a very specific way. We’re going to have to return to the Old Days where people saved substantial amounts of their income as a means of survival, not as a way of insuring a golden retirement.
Best Plan B is to plan on a semi retirement that will include your own saved resources, what ever the government has to offer, and most important, some form of work or business that you can do until the end of life. Sounds cold, but reality is most of the time.
The real question is: will we embrace that reality??? (???)
I’m also surprised at the frankness of that pamphlet (not sure I can call it honesty yet). Even so, they’ll be able to pay 780 dollars for every 1000 dollars scheduled…. that’s admitting right away that these people won’t be getting their full amounts due.
I’m certainly not planning on any Social Security (or rather, its Canadian equivalent, I should say). But I also don’t plan on the old-style retirement, either. It’ll be semi-retirement for me.
I have a feeling that Social Security won’t be around by the time that I retire. I’m not counting on it being around at least -and I’m planning ahead, planning for my and my family’s future. The moment that you start depending on the government to provide for you, the moment you’ll start being disappointed.
I agree that people shouldn’t bank on social security. Of course, in my opinion, that was never the intention of the program for it to be the only source of income for retired individuals but rather to supplement their savings, employer retirement/pension, and family contributions. My husband and I certainly don’t plan on living off of social security when we retire (which is a way off).
However, I do want to note that the birth rate in our country IS incresing. As odd as it may sound, but in 2007 the birth rate was higher than it has ever been in the US. Here is a link to an article discussing this (http://www.nypost.com/seven/03182009/news/nationalnews/2007_birthrate_breaks_1950s_record_160184.htm). This means that the program may have the working income that it needs to sustain itself through 2041 and possible beyond.
I don’t think it will, I’m consider the gen Y group and social security is never in our every day conversation. May may discuss investing in stocks, saving, 401(k) but never, ever have I heard someone mention social security as an additional income.
The only time I remember someone mentioning it, is when they are complaining about it being withdrawn from their check.
It’s sad to say, we are giving away free money right now.
I don’t plan to fully retire and don’t plan on depending on social security. I’m wondering if some of the things I’ve read about the pending healthcare reform play into the government’s social security strategy. Like denying care for people of a certain age – that way they could drop them from social security too. Just thinking. All the more reason to take care of yourself physically too.
The only problem threatening Social Security is a provision in the current tax law that limits taxes on the wealthiest Americans. Currently, you only pay Social Security tax on the first $107,000 of earnings. Income above that level isn’t taxed for Social Security, so people making hundreds of thousands of dollars a year pay the same amount as someone making $107,000. That “cap” is raised periodically, but has failed to keep pace with costs. If it were raised to just $115,000, the system would be fully funded for at least another 75 years. Instead, I’d like to see the cap eliminated out of a sense of fairness. Perhaps then, one in four American seniors would not be living in poverty (that’s another government statistic).
As an early baby boomer, I expect Social Security to be around for me, at least for a few years. What it will buy is another matter. The country has historically experienced significant inflation several years after the end of major wars. If we don’t figure out a way to curtail our foreign adventures and to reign in health care spending, the economic outlook will be very gloomy for younger generations. I don’t know why this country is so against having a national sales tax. Almost every other advanced country has one. Don’t expect almost all government programs to be funded by the taxes paid by “the rich”. it will never happen.
About 10 years ago social security was going to run out of money around 2032. Now ten years later they’re saying 2041. Theres no way they can accuarately predict what it will do 30-40 years in the future. There are far too many variables. It should be noted that the 2041 date is based on middle of the road performance and if the economy and other variables are strong then SS will never run out of funds.
If it does run low on funds then they will need to raise the social security tax, lower benefits or some combination of both. They’ve raised the SS tax rate about 20 times in the past 60 years so another increase in the next 30 years seems quite possible, espcially if needed to ’save’ the system.