Will Social Security Still Exist When You Retire?

When working on financial plans for younger clients, we sometimes encounter skepticism that Social Security retirement benefits will still be available and relevant when they retire.  While we readily agree that younger workers’ retirement benefits are likely to decrease from what they would be under current rules, we have confidence that Congress will continue to make adjustments to the system and shore up Social Security reserves in order to ensure continued benefits well into the future.  (After all, these politicians would like to be re-elected.)

The Current Trajectory.  In its annual “Fast Facts” report, the Social Security Administration (SSA) acknowledges that the program is not sustainable at current benefit and tax rates.  The trust fund reserves that help to pay Social Security retirement benefits are on track to be depleted by 2034.  After that point, the program would have to rely completely on payroll taxes and other income to fund benefits and could only afford 79% of projected program costs.

Why We’re Optimistic.  Despite a lack of political will for a complete Social Security overhaul, the government has made changes in recent years to improve the long-term outlook for retirement benefits.  Like the initial Social Security reform law that President Reagan signed in 1983, which set a course for slowly increasing full retirement age from 65 to 67 over the course of the next 45 years, these changes have been gradual and/or have occurred on the margins of what workers expect to pay and receive.  For example, as we discussed in a prior post, in 2015, Congress passed a law eliminating the ability of spouses to collect a spousal benefit temporarily and then switch to their own benefit at a later date.  This change did not radically impact how much the affected families could expect to collect in Social Security benefits over their lifetimes, and it did not take effect immediately.  It allowed those within four years of being able to take advantage of that claiming strategy to be grandfathered in.

This Year’s Adjustment.  Again, this year the SSA took a step toward shoring up their reserves, but since it is a marginal change, most of those affected by it will likely not even notice.  Each year, the SSA issues two numbers that impact payments into and out of the system for the coming year.  First, the cost-of-living adjustment (COLA) indicates how much retirees’ benefits will increase in the coming year to account for inflation.  Second, the Social Security wage base indicates the maximum amount of wages that will be subject to the 6.2% Social Security tax.  (All wages over the wage base in a given year are not subject to Social Security tax.)  For 2017, retirees were given a 0.3% COLA, but the wage base increased by over 7.3%, from $118,500 to $127,200.  This is the biggest discrepancy between these two numbers in nearly 40 years.  This change is clearly aimed at increasing the amount of income coming into the Social Security system while limiting the increase in the amount paid out.

Even absent a monumental, systemic change in the Social Security program, we believe that the SSA will continue to make incremental changes to strengthen its balance sheet to ensure that retirement benefits are available and relevant for decades to come.  If you have questions about your benefits and how they play into your plan for retirement, please give us a call.