Listen, the moral of this story is that if you are ready to draw Social Security or are nearing Social Security age, please don’t panic.
Learn the facts—then you may breathe a sigh of relief.
This week I came off a string of appointments where I heard more than once the same concern people have expressed over the past years: “I am worried about Social Security.” Many made comments such as “I have Social Security if it is still going to be there.”
I am not in the camp that Social Security is going away. In fact, I believe Social Security is the easiest part of our government to fix. We made great strides back in 1983 when Congress used a mix of payment cuts and revenue increases to gain 50 years on the projected solvency. They raised the retirement age slightly, reduced the payment formula, and eliminated some classes of payments. It was a good move barely felt by most people. They also increased revenue by slightly raising the payroll tax rate and the earnings ceiling. In other words, this is when you stop paying into Social Security during the year if you are one of those high net worth earners. We can do something similar if we feel the need to raise or to secure Social Security.
The Social Security Administration is invested primarily, or only, in U.S. Bonds; this is the law. As of 2013, Social Security had a surplus of $32 billion on operations. Social Security today continues to have $2.6 trillion in trust fund reserves. This is similar to the reserves held by banks or insurance companies.
Social Security reserves are expected to continue growing through 2019. Beginning in 2020, program costs are projected to exceed income, shrinking the trust fund. That sounds like a problem, right? The trust funds could, according to many, be exhausted by 2033. These are the same projections we had for 2012 and 2014. Many say that in 2033, income will cover only 77 percent of scheduled payments. If this were true, I don’t believe Social Security would continue to be running a surplus of $32 billion in operations alone in 2013. The Social Security Administration has one of the smallest waste ratios of government operations—about 0.7 percent of total expenditures. This is less than most discount mutual fund companies out there. The Social Security money in the trust funds continues to earn interest and, according to law, cannot be used for any other purpose (that could be an issue down the road).
Many people are afraid they will not have Social Security. Is it going to change some for younger folks? No doubt, we will have to take a 1983 kind of approach to make some changes. We will probably have to cut expenses, including across-the-board payment cuts. These payment cuts will likely be targeted to very high-income beneficiaries and their family members. This will likely be done by raising the retirement age or the time when those high-income beneficiaries can begin receiving benefits. Just a little change like that for all practical purposes would affect no one while dramatically increasing the solvency of Social Security.
Revenues are likely to increase. Unfortunately, raising payroll taxes could hurt everybody’s discretionary income. However, those increases would only be necessary to raise the ceiling at which higher income workers apply Social Security payments or taxes against their income. I have talked to few high salary people who would have a problem with that at all. Increasing the age at which younger people can begin drawing Social Security even by one month would have a dramatic positive impact on the Social Security Trust Fund.
Here is the biggest problem we face with Social Security: According to the current numbers, the eleventh-hour negotiations do not come for at least another 19 or 20 years. If we are expecting Congress to act on overhauling Social Security before then, we are probably living in some kind of fantasy world or have not been paying attention to the way Congress has been operating for the last five years. The other problem is the over 50 million that have dropped out of the labor participation and the dramatic increases on government assistance. This problem can be fixed only one way robust job growth.
Listen, the moral of this story is that if you are ready to draw Social Security or are nearing Social Security age, please don’t panic. So many people say to me, “I am taking my Social Security benefits now so I can get some before it is gone.” Don’t be afraid to wait. If you can wait until the maximum age so you can maximize your benefit, do so. I have every intention of waiting until I am seventy years old before I start collecting Social Security benefits. Doing that, my monthly payments will be at least 32 percent more than if I were to start collecting at a standard age.
Many have talked about worst-case scenarios for the Social Security Administration. One is that you would get only three-fourths of your expected payments. If that is the worst-case scenario, I guess that is not so bad, but I don’t expect to see even that happen over the next 15 years.
I guess the biggest question is whether Congress will act sooner rather than later. Again, sooner is not likely but would be best. But doing so would certainly give consumer and business confidence a huge boost, particularly as seniors continue to be active and play a strong part in our nation’s economy. Therefore, any peace of mind these seniors could be given would benefit the economy for the long run.
One of the best ways to learn more is to read “Social Security’s summary of the Trustee’s Report.” http://www.ssa.gov/oact/trsum/ On the same link, you can also find The Complete Report from the Trustees. You may also want to read a book by Andy Landis called Social Security, the Inside Story. Reading this book will give you an inside look at Social Security and what helped fix it in 1983. But of course we live in a time when the trust level and compactly level of our government is at an all time low.
Our real solutions to the problems we face today are based a meeting that was held May 25th to September 17, 1787 in Philadelphia as our founders sought “to form a more perfect Union” and establish a government that would “secure the Blessings of liberty to ourselves and our posterity”. They created the institutional agreements for limiting power and securing the rights promised in the Declaration of Independence in doing so it was preserving a republican form of government that reflected the consent of the governed. Can we the governed keep our Republic? Institute the solutions? Maintain our freedoms? Only if through the Grace of God we have the will, strength and wisdom to do so. It’s in the hands of God’s people.