By Teresa Kuhn, JD, RFC
It’s no secret that Social Security is in big trouble and has been for a number of years. While many Americans profess at least a cursory understanding of the problems facing Social Security, an overwhelming majority of us are counting on it to contribute some, if not the majority, of our retirement income.
Concerns about the solvency of Social Security appear to be well-founded. Even the government, as indicated in reports generated by the Congressional Budget Office, acknowledges that the program is strained to the max and will reach a tipping point in the near future, perhaps as early as 2028.
Social Security’s woes can be traced to three primary issues. Unless and until these issues are addressed, it is highly likely that your Social Security plan will resemble that of your parents and grandparents in name only.
Everyone is rushing to the exits at once
The first challenge to Social Security is perhaps the most difficult to resolve. Hundreds of thousands of baby boomers are leaving the workforce and heading into retirement all at once. This mass exodus means there is a difficult to absorb and very rapid expansion of the eligible beneficiary base. Social Security, conceived more than 80 years ago, did not envision such a dramatic demographic shift. As a result, the architects of the system did not account for it when structuring the plan.
Long gone the pensions
A second factor, perhaps less obvious to many of us, is the erosion of defined benefits plans. Also known as pensions, these plans have traditionally provided workers with guaranteed lifetime annuities that begin at retirement.
Defined benefits programs promise employees specific benefits usually based on years of service and earnings received near the end of an employee’s career. Most pensions in the private sector have been replaced by defined contribution plans in which a certain amount of money is set aside each year by a company for the benefit of its’ employees.
According to Investopedia, defined-contribution plans accounted for $6.7 trillion of the $24 trillion in total retirement plan assets held in the United States as of Dec. 31, 2015.
Defined contribution plans, whose fortunes are strongly tied to the stock market, are the opposite of defined benefits plans in that there is no way to know exactly how much a participant will received at retirement. Volatility of the market means that for great numbers of plan participants, Social Security will be needed to make up the gap.
Extended lifetimes guarantee problems
Another issue sure to impact Social Security’s long term viability is increased American life expectancy. Technology, greater awareness of diet, nutrition, and exercise, and better medicine means even the poorest Americans are living longer lives.
When the Social Security Act was passed in 1935, the average American life expectancy was around 61.7 years. However, life expectancy has increased so rapidly that the World Health Organization predicts American women will live an average 83.3 years old and men will live to be 79.5 years by the year 2030!
You don’t have to be a math whiz to figure out that having so many people on benefits for such a long time is bound to strain the system to its’ implosion point. The Social Security Board of Trustees has indicated its’ belief that the program’s $2.8 trillion in surplus cash could be exhausted by 2034. At that point, beneficiaries could see reductions of up to 21%!
This is bad news for those who are counting on this money to fund their retirements.
Author and asset protection specialist, Mark Nestmann, also paints a sobering picture of Social Security’s future, writing, “…By 2029, millions fewer workers will pay into the system than even the most pessimistic scenarios estimate.
Blame technology. In the next couple of decades, restaurants will be staffed entirely by robots or automated servers. Hotels will be equipped with automated check-in systems and robotic butlers. And imagine a future where driverless vehicles are the norm. That development alone will render more than four million jobs in the U.S. obsolete. Indeed, researchers at Oxford University estimate that nearly half of U.S. jobs could be eliminated by technology in the next two decades.
So, it seems that Social Security, while probably not going bankrupt, will have to undergo a lot of changes in order to regain its’ solvency. It will need a complete retooling; factoring in an ever-changing demographic, dramatic reductions in the workforce, and increasing life expectancy.
I advise my own clients to create and control their own financial futures and to not rely on governments or stock markets to protect their wealth. There are specially-designed solutions available which can help you ensure that even if Social Security plan benefits are reduced dramatically, you will still not run out of money in retirement. These solutions have a long, proven track record of success and are not subject to the whims of either Wall Street or the government.
If you’d like to learn more, please contact our office at (800)382-0830. We’ll be happy to send you information on how our system can work to ensure you have a more prosperous and less stressful financial future.