Forget the doomsday predictions that Social Security will soon be gone. It’s a popular government program and one of the few that can claim that title.
Recent headline-grabbing news noted that the primary trust fund is projected to be depleted in 2032-33 due to the use of reserves starting in 2021.
What does this mean? It’s important to note that “running out” does not actually mean running out completely. It means that accumulated surplus (reserves) will be gone. However, payroll taxes from workers will continue to flow into the system. So not only is it not going broke, it’s in much better shape than most people think.
What’s driving the issues behind the supposed long-term decline in the ability to cover retirement benefits is not government waste or overspending; it’s the fact that people are living longer due to health care and medical technology improvements. However, it’s far from the fiscal cliff that is professed.
The Social Security tax rate is currently 12.4%, with employers and employees splitting it on the first $184,500 in earned income.1 To fix any funding problems, a raise in the tax rate by 2.84% would do the trick. The increase would be split between employer and employee, each paying an extra 1.4%, or $14 for every $1000. Do that, and everybody gets what’s coming to them for the next 75 years.
Social Security isn’t going anywhere. It’s a lifetime income backed by the full faith and credit of the United States government – one that pays pretty darn well. As a result, that’s why it’s important to include equity allocations in your investment choices. The guaranteed income that Social Security provides can allow investors to be more aggressive in other areas.
If you have questions or concerns about social security and other income in your retirement, reach out to your hometown financial team. Ever Wealth is happy to help!
1 https://www.irs.gov/taxtopics/tc751