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Should Your Financial Plan Include Social Security?


Two weeks ago, we discussed the problems faced by Social Security. To be blunt, the Social Security System is running out of money, and there is no cure in sight. Worse yet, there has been no actual money available for years, as incoming payroll withholding dollars go out immediately to current recipients. It is virtually impossible not to draw a comparison to the original Ponzi Scheme.

The original Trust Fund, created long ago to hoard cash for future benefits, was spent by an insatiable Congress. America’s demographics are exacerbating the problem, as recipients live (and collect benefits) longer, while fewer younger workers are available to pay into the System. It gets worse.

Even an attempt to discuss solutions to the problem is political suicide for elected officials.

Some degree of political discourse will be required to sustain the system as we know it. That leaves the American public in a quandary, wondering if they will receive promised benefits, either in whole or in part. What role will Social Security play in retirement planning? There is no easy answer.

As financial planners, we consider age a major factor in planning the role of Social Security for guaranteed lifetime income. Dividing the public into general age groups, we believe that anyone who is currently 55 or over will receive benefits according to the published schedule. Below that age, nothing is a certainty, as the probability of reductions in benefits looms large, as described by the Social Security Administration itself.

 “The concepts of solvency, sustainability, and budget impact are common in discussions of Social Security, but are not well understood. Currently, the Social Security Board of Trustees projects program cost to rise by 2035 so that taxes will be enough to pay for only 75 percent of scheduled benefits.”

Americans under the age of 55 should be able to include 75% of planned benefits in their retirement planning calculations. However, unless demographics change in the workforce, the System is likely to encounter even greater problems in later decades. People entering the workforce today would be well served by planning on a totally self-funded retirement. Anything Social Security provides later on could be considered a lifestyle enhancement.

All of this depends on the long-term solvency of the United States of America. While the current trajectory of American debt is ominous, that is a discussion for another day. In military parlance, you go to war with the army you’ve got. We plan our futures (and yours) using parameters we can control.

Van Wie Financial is fee-only. For a reason.