By Liz Behlke
When my 20-year-old daughter looked over the wage summary for her summer job, she zeroed in on the money that was taken out before the paycheck even hit her account. She grudgingly acknowledged the income taxes, hoping she may get some back as a refund. But Social Security? From the buzz she’s hearing among her generation, Social Security will be dried up long before they near retirement age. It seems unfair to have to pay for something they feel like they may never see.
There’s certainly a lot for the younger generation to worry about as they look into the future. So how should they be thinking about Social Security?
Let’s start with the obvious: Predicting the future is fraught. So while nobody can say exactly what’s going to happen 30, 40, and 50 years from now, there are people whose job it is to carefully track the longevity of the Social Security fund. In fact, the latest estimates by actuaries – the statisticians who crunch all the numbers around lifespan and economics – shows that Social Security will run out of funds in 2034. That’s not too far into the future at all. Even someone like myself, who is thinking about the when and how of retirement, could start feeling pretty anxious about this news.
Looming demise, or a high-pressure deadline?
It turns out that for financial professionals, politicians, and other Social Security watchers, there’s nothing at all surprising about the projection that the fund will run out of money in 2034. And this isn’t the first time Social Security had a looming crisis. It also happened in 1983. That was when the government enacted a set of changes that put it in the black. And that’s when they predicted it would be solvent until the year 2035. (New projections that take into account pandemic-related demographic and economic shocks have moved the date forward by a year).
Sensible people may wonder why the government is waiting until the very brink to fix Social Security. One word: Politicians. The solutions aren’t complex: It’s a matter of finding an acceptable balance of cost-cutting and income generating measures. But the necessary actions are never popular with politicians since they mean a combination of increasing taxes and decreasing benefits.
Most experts predict, however, that the changes will get made – probably as the deadline becomes unavoidable. Social Security is one of the most popular entitlement programs in the U.S., and senior citizens are active voters. Politicians have plenty of incentive to make sure Social Security sticks around. The changes, when they come, will probably mean that people who are still working will have to pay more into the fund. They may also have to wait longer to reach an age when they can take full retirement benefits. In addition, future benefits themselves may not cover as much in retirement expenses.
Social Security and you
While it looks like Social Security will get a new lease on life in the next decade or so, the potential changes are a reminder to plan carefully for the financial resources that will fund your retirement. The truth is, even now Social Security payments only cover a fraction of retirement expenses for the average senior. My 86-year-old mom, for example, covers about 40% of her budget with Social Security, but her spending has been low, especially during the pandemic when she hasn’t been able to travel or eat out. Thankfully, my parents participated in employer pension plans and socked away money in IRAs, so she has enough to be comfortable.
I’ve already helped my daughter set up her first IRA, just as my dad did for me when I began earning real money. Maybe it’s good that my daughter assumes she can’t depend on Social Security. That way she’ll have incentive to start saving early and actively think about retirement even in her 20s and 30s. Money saved now has a longer time to accumulate, giving her more flexibility as she gets older.
If predicting the future feels daunting, your Arrivity financial planner can help. They’ll make a careful assessment of your current financials and factor in your plans for the future, including when you hope to retire. Then, they’ll design a roadmap that helps you get there.
Please contact us at 206.217.2583 or email@example.com if we can assist you or someone you know with financial planning.
Liz is a Late Boomer in the sandwich generation who started an independent writing and brand consulting practice after years as a senior marketing executive. She lives in Seattle, Washington. Her mother lives nearby and her daughter comes home during college breaks.
The foregoing content reflects the opinions of Liz Behlke and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.