In the 86 years since President Franklin D. Roosevelt signed the Social Security Act, Americans have awaited its benefits. But today's early retirees may be wondering whether these benefits will last for decades.
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With the federal government spending trillions of dollars amid a pandemic, fear of the demise of Social Security grows. Nearly half of millennials (47%) believe they “don't get a dime from the benefits they deserve,” according to a recent study by the Nationwide Retirement Institute. Overall, 71% of adults aged 25 and over are concerned that the social security program will expire in their lifetime.
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You may have heard that social security trust funds could go empty in 2034, leaving recipients to pay only 76% of their promised benefits by then. The Social Security Board of Trustees just released its latest forecast, which suggests the trust funds would be depleted a year earlier than estimated in last year's report.
Federal spending due to pandemics is a burden on the system. And administration officials said falling employment figures in 2020 resulted in lower wage tax revenues, which in turn impacted Social Security reserves.
However, experts are not too concerned. They argue that Congress can modify social security funding mechanisms to maintain its longevity.
"Social security is so popular with Republicans and Democrats," said Eric Kingson, co-author of "Social Security Works for Everyone!"
He adds that there are easy ways for Congress to address deficits, such as raising the salary cap from its current $ 142,800 to, say, $ 400,000. (Any income that is above the upper wage limit is exempt from social security payroll tax.)
The government can also rethink the way in which it is investing the financial reserves of the social security system. Because it buys US Treasuries – rather than stocks – investment returns often outperform the broader market.
"It's not unreasonable to invest some of that in stocks," said Kingson, a professor of social work at Syracuse University. Diversifying into more volatile assets, while risky, can also strengthen the long-term sustainability of the program and address at least part of the expected deficit in the 2030s.
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Even without these and other potential changes in funding, financial advisors aren't particularly concerned about the likelihood of the program's collapse. You may point out that in its long history, Social Security has never failed to pay benefits. And most of its income comes from wage bill contributions, creating a steady stream of income.
"I would be surprised if someone over 40 sees a change in their social security benefits," said Jeff Branson, a certified financial planner in Biddeford, Me. "But for people under 40, there will now be changes based on the numbers."
Another advisor, Beau Henderson, is a little less optimistic. He predicts that people over 50 will not have to worry about reduced benefits.
"But if you're under 50, Social Security may not be that big an income for you," said Gainesville, Georgia, Henderson. "You can be responsible for a bigger piece, so it's important to prepare for it now."
Henderson assures its younger clients that they can count on Social Security even if the program changes.
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"What the government does really well is kick the can on the street," he said. "So we'll see small, incremental changes to keep the system working."
He urges clients to start calculating what they could get from Social Security long before they retire. Younger Americans receive printed statements every five years from the Social Security Administration that estimate future monthly benefits based on retirement age.
Instead of waiting for these bank statements to arrive in the mail, create an account at myaccount.socialsecurity.gov. That way, you can keep track of the estimated benefits for you and your spouse each year.