How Do You Plan for Social Security That Might Not Be There?
The trustees of the social security board are just full of good news. According to their latest report, the fund will run out of money by 2034. This simply means that those who depend on social security will be paid from incoming social security taxes. So, money coming in from taxes will be going right out to pay benefits. This could be OK with one exception. The money coming in from taxes won't cover the need and since the social security fund will be depleted there won't be money to make up the difference.
So, that is not good news on the surface. Many people depend on and plan on social security making up a good bit of their retirement. That is a whole other problem. So like healthcare expenses, social security is a huge uncertainty in the retirement planning process. Let's take a deep breath and look at this realistically so that no one is caught off guard.
- The politicians will be forced to deal with this issue. Politics are very simple. When you have a big percentage of the voting block that are unhappy, politicians get off of their self serving ways and take action. Since 2034 is a ways off, don't expect anything done anytime soon. At some point, they will increase payroll taxes on corporate America and individuals to increase the amount coming in. The fantasy of tax cuts will come to an end when it is painfully evident that we can't cut taxes and still pay for everything (and we are already there). There will be the coming political savior of social security and he or she will raise taxes while creating the optics that they aren't. If America is as uninformed as they are now, most won't even notice.
- Don't expect a free ride. To make this work they will have to either raise the ages that you can get social security or reduce the benefits or both. Of course this will be on the future of the working class. Current social security recipients should be grandfathered in - Remember a high percentage of unhappy voters don't bode well for politicians.
- Plan for it realistically. Take future benefits and plan for three adjustments. First, take your expected benefit and trim it by 25%. That lowered expectation in your planning should be realistic. If you are expecting $1,000 a month reduce your expectation to $750. Second, if you were planing on taking it at 67 maybe adjust that to 68 or 69. Finally, don't factor in any inflation increases. You probably will get them. However, it will be low increases and they will be randomly applied. If you are a millennial or younger, you might just plan for a life without social security to be safe or use drastically lowered numbers.
At some point, politics will break the system. The system is in the process of breaking. As a result, there is wisdom in lowering your expectations as to anything you depend on the government to provide. Contrary to popular belief, the funding of social security benefits done the right way, is a huge undertaking. Don't worry the politicians are in charge - what could go wrong?