Three Steps To Take Now
Something that caught my eye recently was an article from the New York Times titled “Social Security Is Staring at Its First Real Shortfall in Decades.” In short, the article says that in 2020, Social Security expenses will exceed income and the program will be forced to begin drawing down its assets in order to pay retiree benefits.
Unless changes are made to the program, it is projected that Social Security’s trust funds will be depleted within 15 years. If that were to happen, current law would require that benefit checks for retirees be cut by 20% across the board. Such a benefit cut could be a catastrophic surprise for the approximately 50% of retirees who depend on Social Security for the bulk of their retirement income. To make matters worse, a survey the Federal Reserve released in May found that 25% of working Americans had no retirement savings.
The looming problems with funding Social Security benefits are nothing new. We’ve known for years that as more and more baby boomers retire there will not be enough younger workers still paying into the system to support the same level of benefits and, thus far, lawmakers have been unwilling or unable to develop and implement a solution.
What has changed, or will change next year, is that we have now reached the tipping point where current outflows from Social Security are greater than inflows into the system and therefore meeting current benefit entitlements will require drawing down the system’s trust funds. Fifteen years, when the trust funds are projected to be depleted, may seem like a long way off.
Consider, however, that if this timeline is correct, it means that workers who are currently in their early-to-mid 50’s will receive 20% less in benefits from Social Security when they retire if the current regulations remain in place. This is a large uncertainty for a group who, on average, are more than halfway through their careers and the wealth accumulation phase of their lives.
Reduced Social Security benefits, increasing life expectancy, and increasing health care costs could combine to torpedo the retirement that many of these folks expected.
What To Do Now:
- Get very clear and understand your optimal Social Security strategy or strategies.
- Confirm your retirement savings (IRA, Roth, 401k, annuity, pension, etc.) are coordinated with your Social Security strategy for the greatest tax efficiency. Don’t give away more to the IRS than you need to.
- Continuously monitor and maintain your accounts as the market changes due to the economy and geopolitical events. Most can’t afford to revisit the 2008-2009 market crisis.
If you haven’t taken these 3 steps yet I believe it’s imperative that you do so.
Give me a call. We’re here to help.
