The Real State of Social Security – It’s Not As Bad As You Think

If you pay attention to these things you’ll recall that late in 2009, there was a considerable amount of alarm raised due to the fact that current Social Security benefits were being paid in part from the “trust fund” – not wholly from current withholding.  This situation came about because of the reduced employment figures, along with earlier benefit filing by folks of eligible age who have been unable to secure employment.  The doomsday assumption about this is that we’ve reached the period of continual reliance on the trust fund – earlier by 7 years than the most recent predictions of 2016.  Wild predictions about the demise of the system have abounded.

However… the Social Security Board of Trustees recently released their annual report on the financial health of the Social Security Trust Fund, and the long-range outlook is unchanged over previous years.  What the SSBoT reviews is a 75-year projection of inflows and outflows into the Trust Fund, and they’ve seen that the system, with a few tweaks, will remain consistently viable through the 75-year period.  This is the same result that has been seen in other recent reports.

One thing that you might find surprising from the report is that the Trust Fund increased by $122 billion in 2009 to a total of $2.54 trillion.  So, even though the system took in $667 billion in taxes withheld and paid out $686 billion in benefits – the Trust Fund making up the difference – there was still an increase in the Trust Fund due to interest earned on the balance.

The Tweaks

I mentioned some “tweaks” earlier… one of the assumptions (inevitabilities?) about the health of the Social Security Trust Fund is that changes will be made over the years.  As you may have guessed, one of two things must occur in order for the system to remain healthy for the projected 75 years:  either benefits will be reduced (or taxed at a greater rate, or both), or the rate of withholding must be increased somewhat (this means higher payroll taxes).  But it’s not as bad as it seems.

Turns out, the “actuarial deficit” (that’s a fancy term for shortage of funds) over the 75-year projection is 1.92% of the projected payroll.  This is actually a reduction of 0.08% over the deficit projected in the 2009 annual report.  In one way or another we’ll either see reductions in benefits, increased taxation of benefits, and/or increases in payroll taxes in the years to come, so that we will be able to meet the projected benefits with the projected payrolls.

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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A Social Security Owner's Manual

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