Last year, when the Social Security Board of Trustees released its annual report, there was quite a bit of handwringing. The economic hardships of 2020 had depleted reserves quicker than anticipated and projections were showing that Social Security could run out in 2034, one year ahead of previous estimates. By then, Social Security would only be able to pay approximately 78% of expected benefits to retirees.
As we discuss on today's episode, this year's report, released on June 2nd, is a bit more optimistic. But the ongoing social, political, and economic challenges that will affect your benefits in retirement mean it's critical that folks understand how these funds work, maintain realistic expectations, and work with an advisor to plan ahead.
Listen to the Episode
Simply "click" or "tap" on the "play" icon in the image below to listen to the episode. If you'd like to subscribe to the podcast using an Apple product (iPhone, iPad, iPod touch) click here to learn how. If you use an Android phone, we recommend using the Podcast Addict App, which can be downloaded here.
1. Projections vs. headlines.
Due to the post-lockdown economic recovery in 2021, the 2022 Social Security report now projects that the trust will remain solvent through 2035. The size of payable benefits at the time of depletion has also gone up to 80%.
So how has the media reported what's, overall, modestly good news?
Here's a typical headline: "Seniors on Social Security Could Be Headed for a 20% Pay Cut."
You've probably seen other headlines that say things like, "Social Security Will Go Broke in 12 Years." Which, while technically true, doesn’t really tell the full story.
2. The politics of Social Security.
Here's a key quote from the report, with my added emphasis: "The year when the combined trust fund reserves are projected to become depleted, if Congress does not act before then, is 2035."
It can be very, very hard to get our politicians to agree on much. But letting Social Security run out would be political suicide for whoever is in charge. Older Americans are among the most active and motivated voting blocks in our citizenry. And younger workers who grew up through the Great Recession and COVID-19 are starting to take the long view of their financial futures as well. I'd say there's a very high likelihood that, early next decade, if Social Security is still nearing depletion, our leaders will begrudgingly come together and find a way to keep the fund going.
How might they accomplish that?
Well, the increases we're seeing in the 2022 report are largely due to higher tax revenue. Government stimulus coupled with businesses reopening gave folks money to spend, which increased corporate revenue, which sent some of that money back to the government in the form of taxes. It's anyone's guess what the economy is going to look like in 10 years, but increasing the payroll tax would be one way to put more money into the Social Security fund.
Another option would be to raise the full retirement age from 67 to 70, which would incentivize some seniors to work longer, pay more into the system, and delay taking their own benefits.
Of course, none of these proposals occurs in a vacuum. If you start making changes to Social Security and retirement age then you might have to make some corresponding to changes to Medicare, both in terms of how it's funded and when folks can start taking their benefits.
3. What's next?
By now you're probably asking yourself, "If this year's report, based on a strong 2021, was slightly positive, what's next year's report, based on this year's struggling economy, going to look like?"
As we discussed on another recent episode, some of the bad news on Wall Street this year is relative. Any drop from the big 2021 numbers we started with at the beginning of the year is going to look like the "biggest ever." And despite the high cost of gas, inflationary concerns, and supply chain issues, our economy is still adding jobs, which means companies are still making money. We’ll have to see how that translates into corporate earnings – and tax revenue – as those reports continue to roll out this summer.
Of course, none of us can control the big unknowns that are causing much of the volatility in our markets: COVID, the war in Ukraine, the price of oil, and rising inflation. That's why it's so important that you focus your financial planning on things that you and your financial advisor can control, rather than getting overwhelmed by what you're seeing on the news.
My team at Keen Wealth is always available to talk through your questions about Social Security, Medicare, or any other part of your financial plan. Get in touch and let's discuss what matters most: your goals for retirement and your long-term financial security.
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
KWMG, LLC’s dba Keen Wealth Advisors (“company”) is an SEC Registered Investment Advisor located in Overland Park, KS. The company and its representatives may only conduct business in those states where registered or where excluded/exempt or from licensure. For registration information please contact the SEC or the state securities regulators for the states where the company is notice filed. A copy of the company ADV is available upon request. Advisory services are only offered to clients or prospective clients where the company and its representatives are properly licensed or exempt from licensure. No advice may be rendered by the company unless a client service agreement is in place. This information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy and is for illustrative purposes only. Clients and prospective clients must consider all relevant risk factors involved with each strategy, including costs or fees, and their own personal financial situations before trading.
The views outlined in the book, Keen on Retirement Engineering the Second Half of Your Life, are those of the author and should not be construed as individualized or personalized investment advice. Any economic and/or performance information cited is historical and not indicative of future results. Economic forecasts set forth may not develop as predicted.
The Amazon Best Seller ranking listed on marketing materials is specifically referring to Best Seller rankings for the Kindle Top 100 Paid Lists under the subcategories of: Budgeting and Financial Risk Management, based on data as of September 5, 2019. Amazon rankings although relevant on how a product is selling overall doesn’t necessarily indicate how well an item is selling among other similar items or similar item categories. Amazon may choose the most popular categories or subcategories within which an item has a high ranking to determine its best seller rankings. These rankings are updated hourly and as a result, should be expected to fluctuate as such. Keen Wealth Advisors and Amazon are not affiliated entities.
The Steve Sanduski Advisor Network, Belay Advisor, LLC and other third-party contributors to our blogs and podcasts are not affiliated with Keen Wealth Advisors.
For additional details on Keen Wealth Advisors, please visit https://www.keenwealthadvisors.com/important-disclosures.