Social Security: The Big (Overblown) Scare

Author: Jeff Supple, CFP(R)

Q: How many times have we heard Social Security is running out of money or is broke?
A: Too many times to count or in the 100+ million range if you measure by Google search results.

The reality is that for years Social Security has taken in more than its paid out. This is because Social Security retirement benefits are mostly funded by payroll taxes (that’s what FICA is on your paychecks for those of you keeping score at home).

As more and more Baby Boomers retire and aren’t fully replaced you have a strain to the surplus that has built up over the years. The surplus is what is in jeopardy, not Social Security itself. If nothing is done, the surplus (i.e., Old-Age and Survivors Insurance (OASI) Trust Fund) is due to run out in 2033. At this time Social Security will only be able to pay out 78% of promised benefits (according to the Center on Budget and Policy Priorities https://www.cbpp.org/).

Washington can and will act. Social Security’s problems are known as are the solutions. Political will stands in the way. A combination of raising payroll taxes, the retirement age, taxes on Social Security are all possible solutions but not very popular ones politically speaking. The problem will be kicked down the road as usual before a major overhaul is completed to ensure Social Security’s viability (the last major overhaul was done in 1983).

Although the fear of Social Security going broke has had some positive affects (generations are saving more for retirement because they don’t think they can rely on SS being there), there are some negative implications.

Like making poor investment decisions based on overblown fears stoked by the media/social media, many individuals are basing their Social Security filing strategy on the fear as opposed to the context of their overall financial picture. Too often individuals are filing for benefits early without thinking how it affects a surviving spouse, your taxes, etc.
When to file for Social Security should not be a one-size-fits-all proposition. Many factors come into play and your decision should not be made in a vacuum and certainly not based on a “If it bleeds it leads” headline.

Content in this article is for general information only and is not intended to provide specific advice or recommendations for any individual. The information presented here should only be relied upon when coordinated with individual professional advice. SB Financial Services and LPL Financial are not affiliated with or endorsed by the Social Security Administration or any government agency. The Social Security Administration provides free Social Security forms, publications and assistance.