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When Will Social Security Run Out?


"...Technically, yes, our government has borrowed most of the money in the Social Security trust fund."

Transcript:

Hey guys, Mike Frontera here, back with another edition of Retirement Insights. Clients come into me all the time with stuff they’ve heard about Social Security. So they’ll ask me, “Mike, What’s the deal with Social Security? Isn’t it going bankrupt? Will it even be around in 20 years?” Or during the planning process I’ll ask for a client’s Social Security benefit estimate and get “ehh, it’s not even going to be around for me. Who cares? Let’s not count on it.” So I think it’s time that we clear these misconceptions about Social Security and its so called “demise”.

Here’s one that I hear all the time: The Government has raided the Social Security Trust Fund! The claim is that our government (who some conspiracy theorists believe are actually lizard people)

(1:00)

 have stolen all of the money out of the Social Security Trust Fund.

Alright, let’s back it up for a minute. Are we all on board with what the Social Security trust fund is?

Well the cliff’s notes version is that all of us worker bees pay a tax called FICA that provides money to, among other things, pay out these Social Security benefits. And since the program began kicking out benefits in 1937, FICA taxes covered these payments and then some. Every year, those FICA taxes get deposited into a trust fund and benefits come out. Any surpluses are built up in the fund so that if there is ever a benefit shortage from the current tax revenue, Social Security can dip into that trust fund to make up the difference. And in fact that has happened a few times and there was always plenty of money to cover those shortfalls.

(2:00)

OK, let’s go back to the Congressional lizard people that are raiding that trust fund! I think at best you could say that’s a distortion of what’s really going on. Technically, yes, our government has borrowed most of the money in the Social Security trust fund. But the reality is simply that the trust fund is investing in bonds as a way to gain interest on the money that’s received. Bonds are really an “IOU” and bonds of the Social Security trust fund are a special form of treasury bond. So in that sense then you could then say the government has “borrowed” from the trust fund. But it is a beneficial practice of the trust to invest its cash and gain interest. And frankly US backed bonds are generally considered one of the safest investments.

 

The total trust fund right now in accordance with this chart stands at roughly $2.8 Trillion.

(3:00)

And a big portion of that pool is from interest on these bonds.

Interest alone from 2000 to now accounts for over $1.4 Trillion (or half) of the current pool of assets. If the funds simply sat in cash, the level of this trust fund would be far less and its longevity would be much shorter.

The other misconception is that Social Security is on a path to total failure and that it should not be counted on. Well, as Mark Twain might have said “the reports of Social Security's death have been greatly exaggerated”. Right now, the Social Security trust fund is still taking in more money than it pays out in benefits. You can see by the chart here that assets continue to grow each year.

That said, there is a true long-term problem with Social Security and its trust fund that needs to be addressed. You may also notice that each year that trust surplus is getting smaller and smaller.

(4:00)

The latest update from Social Security annual reports predicts that the fund will start running deficits by 2022. And like an exponential curve, the shortfalls begin to get larger and larger each year, picking up steam until the fund itself runs out of money. That’s currently scheduled to be in 2034. At that point, yeah that would be a problem. But it also does not mean no Social Security payments. That same summary says that without any changes to what we’re doing now, the incoming FICA revenue alone is enough to pay out 77% of scheduled benefits in 2034 and 73% of benefits in 2091. So to plan for having no Social Security payments just doesn’t make a lot of sense.

And now, we still have time to deal with these projected shortfalls and protect ongoing benefits. Some of these most popular methods,

(5:00)

call for little changes now but can add up to major savings for the trust fund in the future. AARP has an interesting article outlining these proposed changes and I’ll put a link at the end of the video and at the bottom of the transcript that I do encourage you to check out. Things like slowly increasing the full retirement age or increasing the number of years that are used to calculate benefits can not only help sustain the trust fund, but frankly just make sense to reflect increasing lifespans. Regardless of the method that’s used, saving the trust fund from eventual depletion is of course important. But Social Security will continue to pay the majority of benefits with or without that fund. As long as we’re willing to tax workers (which we’ve always been happy to do), Social Security should be able to provide a steady source of income for retirees well into the future.

(6:00)

So, do you have questions for me? Let me know. Give me a call at (518) 612-1060, or send me an email at mfrontera@npafinancial.com. Do you follow me on Facebook? I think that you should. You'll see videos like these, and get blog and article shares on everything retirement planning. Once again, thanks for joining me. See you next time.

Sources Consulted

  1. https://www.ssa.gov/OACT/ProgData/specialissues.html
  2. https://www.ssa.gov/cgi-bin/investheld.cgi
  3. https://www.ssa.gov/policy/docs/statcomps/supplement/2017/supplement17.pdf
  4. https://www.ssa.gov/oact/trsum/tr17summary.pdf
  5. https://www.aarp.org/work/social-security/info-05-2012/future-of-social-security-proposals.html


    "...Technically, yes, our government has borrowed most of the money in the Social Security trust fund."

    Transcript:

    Hey guys, Mike Frontera here, back with another edition of Retirement Insights. Clients come into me all the time with stuff they’ve heard about Social Security. So they’ll ask me, “Mike, What’s the deal with Social Security? Isn’t it going bankrupt? Will it even be around in 20 years?” Or during the planning process I’ll ask for a client’s Social Security benefit estimate and get “ehh, it’s not even going to be around for me. Who cares? Let’s not count on it.” So I think it’s time that we clear these misconceptions about Social Security and its so called “demise”.

    Here’s one that I hear all the time: The Government has raided the Social Security Trust Fund! The claim is that our government (who some conspiracy theorists believe are actually lizard people)

    (1:00)

     have stolen all of the money out of the Social Security Trust Fund.

    Alright, let’s back it up for a minute. Are we all on board with what the Social Security trust fund is?

    Well the cliff’s notes version is that all of us worker bees pay a tax called FICA that provides money to, among other things, pay out these Social Security benefits. And since the program began kicking out benefits in 1937, FICA taxes covered these payments and then some. Every year, those FICA taxes get deposited into a trust fund and benefits come out. Any surpluses are built up in the fund so that if there is ever a benefit shortage from the current tax revenue, Social Security can dip into that trust fund to make up the difference. And in fact that has happened a few times and there was always plenty of money to cover those shortfalls.

    (2:00)

    OK, let’s go back to the Congressional lizard people that are raiding that trust fund! I think at best you could say that’s a distortion of what’s really going on. Technically, yes, our government has borrowed most of the money in the Social Security trust fund. But the reality is simply that the trust fund is investing in bonds as a way to gain interest on the money that’s received. Bonds are really an “IOU” and bonds of the Social Security trust fund are a special form of treasury bond. So in that sense then you could then say the government has “borrowed” from the trust fund. But it is a beneficial practice of the trust to invest its cash and gain interest. And frankly US backed bonds are generally considered one of the safest investments.

     

    The total trust fund right now in accordance with this chart stands at roughly $2.8 Trillion.

    (3:00)

    And a big portion of that pool is from interest on these bonds.

    Interest alone from 2000 to now accounts for over $1.4 Trillion (or half) of the current pool of assets. If the funds simply sat in cash, the level of this trust fund would be far less and its longevity would be much shorter.

    The other misconception is that Social Security is on a path to total failure and that it should not be counted on. Well, as Mark Twain might have said “the reports of Social Security's death have been greatly exaggerated”. Right now, the Social Security trust fund is still taking in more money than it pays out in benefits. You can see by the chart here that assets continue to grow each year.

    That said, there is a true long-term problem with Social Security and its trust fund that needs to be addressed. You may also notice that each year that trust surplus is getting smaller and smaller.

    (4:00)

    The latest update from Social Security annual reports predicts that the fund will start running deficits by 2022. And like an exponential curve, the shortfalls begin to get larger and larger each year, picking up steam until the fund itself runs out of money. That’s currently scheduled to be in 2034. At that point, yeah that would be a problem. But it also does not mean no Social Security payments. That same summary says that without any changes to what we’re doing now, the incoming FICA revenue alone is enough to pay out 77% of scheduled benefits in 2034 and 73% of benefits in 2091. So to plan for having no Social Security payments just doesn’t make a lot of sense.

    And now, we still have time to deal with these projected shortfalls and protect ongoing benefits. Some of these most popular methods,

    (5:00)

    call for little changes now but can add up to major savings for the trust fund in the future. AARP has an interesting article outlining these proposed changes and I’ll put a link at the end of the video and at the bottom of the transcript that I do encourage you to check out. Things like slowly increasing the full retirement age or increasing the number of years that are used to calculate benefits can not only help sustain the trust fund, but frankly just make sense to reflect increasing lifespans. Regardless of the method that’s used, saving the trust fund from eventual depletion is of course important. But Social Security will continue to pay the majority of benefits with or without that fund. As long as we’re willing to tax workers (which we’ve always been happy to do), Social Security should be able to provide a steady source of income for retirees well into the future.

    (6:00)

    So, do you have questions for me? Let me know. Give me a call at (518) 612-1060, or send me an email at mfrontera@npafinancial.com. Do you follow me on Facebook? I think that you should. You'll see videos like these, and get blog and article shares on everything retirement planning. Once again, thanks for joining me. See you next time.

    Sources Consulted

    1. https://www.ssa.gov/OACT/ProgData/specialissues.html
    2. https://www.ssa.gov/cgi-bin/investheld.cgi
    3. https://www.ssa.gov/policy/docs/statcomps/supplement/2017/supplement17.pdf
    4. https://www.ssa.gov/oact/trsum/tr17summary.pdf
    5. https://www.aarp.org/work/social-security/info-05-2012/future-of-social-security-proposals.html


"...Technically, yes, our government has borrowed most of the money in the Social Security trust fund."

Transcript:

Hey guys, Mike Frontera here, back with another edition of Retirement Insights. Clients come into me all the time with stuff they’ve heard about Social Security. So they’ll ask me, “Mike, What’s the deal with Social Security? Isn’t it going bankrupt? Will it even be around in 20 years?” Or during the planning process I’ll ask for a client’s Social Security benefit estimate and get “ehh, it’s not even going to be around for me. Who cares? Let’s not count on it.” So I think it’s time that we clear these misconceptions about Social Security and its so called “demise”.

Here’s one that I hear all the time: The Government has raided the Social Security Trust Fund! The claim is that our government (who some conspiracy theorists believe are actually lizard people)

(1:00)

 have stolen all of the money out of the Social Security Trust Fund.

Alright, let’s back it up for a minute. Are we all on board with what the Social Security trust fund is?

Well the cliff’s notes version is that all of us worker bees pay a tax called FICA that provides money to, among other things, pay out these Social Security benefits. And since the program began kicking out benefits in 1937, FICA taxes covered these payments and then some. Every year, those FICA taxes get deposited into a trust fund and benefits come out. Any surpluses are built up in the fund so that if there is ever a benefit shortage from the current tax revenue, Social Security can dip into that trust fund to make up the difference. And in fact that has happened a few times and there was always plenty of money to cover those shortfalls.

(2:00)

OK, let’s go back to the Congressional lizard people that are raiding that trust fund! I think at best you could say that’s a distortion of what’s really going on. Technically, yes, our government has borrowed most of the money in the Social Security trust fund. But the reality is simply that the trust fund is investing in bonds as a way to gain interest on the money that’s received. Bonds are really an “IOU” and bonds of the Social Security trust fund are a special form of treasury bond. So in that sense then you could then say the government has “borrowed” from the trust fund. But it is a beneficial practice of the trust to invest its cash and gain interest. And frankly US backed bonds are generally considered one of the safest investments.

 

The total trust fund right now in accordance with this chart stands at roughly $2.8 Trillion.

(3:00)

And a big portion of that pool is from interest on these bonds.

Interest alone from 2000 to now accounts for over $1.4 Trillion (or half) of the current pool of assets. If the funds simply sat in cash, the level of this trust fund would be far less and its longevity would be much shorter.

The other misconception is that Social Security is on a path to total failure and that it should not be counted on. Well, as Mark Twain might have said “the reports of Social Security's death have been greatly exaggerated”. Right now, the Social Security trust fund is still taking in more money than it pays out in benefits. You can see by the chart here that assets continue to grow each year.

That said, there is a true long-term problem with Social Security and its trust fund that needs to be addressed. You may also notice that each year that trust surplus is getting smaller and smaller.

(4:00)

The latest update from Social Security annual reports predicts that the fund will start running deficits by 2022. And like an exponential curve, the shortfalls begin to get larger and larger each year, picking up steam until the fund itself runs out of money. That’s currently scheduled to be in 2034. At that point, yeah that would be a problem. But it also does not mean no Social Security payments. That same summary says that without any changes to what we’re doing now, the incoming FICA revenue alone is enough to pay out 77% of scheduled benefits in 2034 and 73% of benefits in 2091. So to plan for having no Social Security payments just doesn’t make a lot of sense.

And now, we still have time to deal with these projected shortfalls and protect ongoing benefits. Some of these most popular methods,

(5:00)

call for little changes now but can add up to major savings for the trust fund in the future. AARP has an interesting article outlining these proposed changes and I’ll put a link at the end of the video and at the bottom of the transcript that I do encourage you to check out. Things like slowly increasing the full retirement age or increasing the number of years that are used to calculate benefits can not only help sustain the trust fund, but frankly just make sense to reflect increasing lifespans. Regardless of the method that’s used, saving the trust fund from eventual depletion is of course important. But Social Security will continue to pay the majority of benefits with or without that fund. As long as we’re willing to tax workers (which we’ve always been happy to do), Social Security should be able to provide a steady source of income for retirees well into the future.

(6:00)

So, do you have questions for me? Let me know. Give me a call at (518) 612-1060, or send me an email at mfrontera@npafinancial.com. Do you follow me on Facebook? I think that you should. You'll see videos like these, and get blog and article shares on everything retirement planning. Once again, thanks for joining me. See you next time.

Sources Consulted

  1. https://www.ssa.gov/OACT/ProgData/specialissues.html
  2. https://www.ssa.gov/cgi-bin/investheld.cgi
  3. https://www.ssa.gov/policy/docs/statcomps/supplement/2017/supplement17.pdf
  4. https://www.ssa.gov/oact/trsum/tr17summary.pdf
  5. https://www.aarp.org/work/social-security/info-05-2012/future-of-social-security-proposals.html
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