With the election in full swing now, regardless of any political antics and personal attacks, what remains beneath the drama the media is reporting are the big issues facing our country. One of the biggest issue is Social Security and what is to become of it. And that is a very big issue, indeed, since it affects us all.
Social Security Challenges: The Current Social Security System Structure
The question of whether or not Social Security will be available to us in the future is one that rings in the minds of young and old. Those of us still in the workforce see Social Security taken from our paychecks, presumably to be available to us when we need it in our old age. Our parents and grandparents may depend on it during their retirement years, which may be upon them now or coming up soon.
And what about our children who could face challenges to their retirement funds when their time for retirement comes? A shiver of fear may run through us all, especially since financial media often rings a direful bell of ‘Social Security will be defunct in x years.’
We hear politicians on both sides talking about the Social Security challenges facing our nation, and talk is merely talk unless something is done to prevent a financial catastrophe. This is where cynicism will often kick in, with the assumption that nothing can be done. But is that really true?
If we look toward changes to the Social Security system now, rather than waiting, we can potentially make a difference.
Social Security Reform
The Social Security Administration actuaries are looking at Social Security’s current state and what they predict for it, but their configurations are under scrutiny. Some believe their models are flawed, but most agree that a change has to happen.
Social Security under current assumptions with no changes to the system will have enough money by the early 2030’s to pay 75% of its promised benefits. If you’re doing the math in your head right now, you might find that that’s right when you’re going to need yours. (67 is the retirement age right now, to help you out.) I’m not sure that paying 75% is a disaster but it could certainly be painful given we’ve been paying into it for our entire working lives.
For an issue as detailed as Social Security reform, it’s clear that no one single thing is going to fix the problem. There are a few options being discussed in Washington, some of which pose new challenges:
- Increase in retirement age. People are living longer and drawing Social Security benefits longer, putting a strain on the system. Increasing the retirement age which could force people to stay in the workplace longer than expected or desired. Some believe raising the retirement age is a benefit cut no matter when you begin taking benefits.
- Reduce cost of living adjustment. The current cost of living adjustment doesn’t keep up with inflation. In fact, the adjustment for 2017 will be the lowest annual increase on record. This negatively affects seniors’ income because out-of-pocket healthcare costs and medications tend to increase at a faster rate than the average cost of living.
- Switch to something called ‘means testing’. Means testing would reduce benefits for higher income recipients or eliminate them entirely. Traditionally benefits have been paid to anyone who has paid into the system without taking into consideration other income such as investments, pensions and savings. In other words, think “If you make more than $x, you don’t need Social Security benefits.” The danger here is what is that amount going to be? The fear is that this number, your income and asset amount, will be set too low, and you may wind up making too much money to qualify for Social Security benefits. The fear centers on what is considered wealthy? Right now, the average income is $40,000 to $50,000, so we all want that ‘no benefits for you’ bar to be set as high as possible.
- Reform Social Security Disability Insurance (SSDI) benefits. SSDI was meant to provide assistance to permanently disabled Americans over the age of 50 but has expanded in both scope and size over time. Technically SSDI and Social Security are separate programs, but due to the increasing costs of SSDI, reforms are needed to encourage individuals to return to the workforce if possible and eliminate inconsistent disability awards.
These are just some of the considerations and challenges facing those who hold Social Security reform in their hands. We need a reform of the system that can make Social Security retirement and Social Security disability still accessible to as many of us as possible.
Now there is one hot topic during these current elections that may not be viewed from a mindset of Social Security survival. Since we’ll have a smaller workforce over the next 30 years, there will be fewer people working and thus less money going into Social Security.
One reality is this: We would need more immigrants coming into the system to pay into Social Security. And here we are poised on a hot button for this year’s elections. Immigration is a big topic right now, an inflammatory one. But it’s an important piece of the puzzle that just might rescue Social Security for the good of all. We’ll all be watching, and voting, with hopes of being part of the solution.
In the meantime, we need to focus on making the best choices that we can with what we can currently control. This means:
- Examining our financial portfolios with the help of our financial planners
- Saving as much as we can
- Allocating our retirement funds to help ensure our solid and secure futures as best we can
Check out our podcasts on Social Security, covering social security challenges and potential reform to get some of our insights and statistics, and more information about the many intricate issues that will be a part of the likely battle to fix Social Security.