According to CNBC “Social Security reserves are projected to be fully depleted by 2035.” Let’s be real, we have all heard this many times in the last 10 years and it seems like every year the timeline is moving up.
As someone in their 20’s-40’s, you probably are not planning on receiving social security benefits. Almost everyone I talk to says they don’t plan on it. But…I think you are wrong and let me tell you why.
The news posts these headline to try and drive fear into all of you. It’s just like those posts you see about the largest comet ever that is coming towards earth, then you look into the article and it says it will be as close to us as Saturn… It’s all about driving more people to their websites since fear leads to more clicks.
The headlines you are seeing are misleading to say the least. It probably has you thinking “oh no, social security is going to be completely gone and I won’t get it.” This is not true. Social security itself is not set to run out in 2035. What is going to run out is the reserves for social security. These reserves came from years where there was more generated from taxes then they needed to pay out resulting in a surplus they could hold onto for the future. However, 76% of social security benefits come from payroll taxes in a given year. The job of the reserves were to fill up that last 24%. I am not saying this is not a huge problem. If nothing changes, we will definitely be short and not able to fund the full amount for everyone. However, it seems very unlikely that they will just eliminate a program that will be 76% of the way funded still. What is more likely, is that they either increase taxes to cover this or make reforms to the program. Some options talked about are:
- moving back the full retirement age
- reducing benefits
- eliminating benefits for high wage earners
It seems very unlikely that they wipe out this program as pensions have gone away and as of now social security provides over 50% of the income for elderly married couples.
It is definitely possible that social security will look different by the time we retire, but it seems unlikely it will just disappear as we are all regularly paying into it. Plus, we print our own currency so there’s no reason we can’t keep funding a program that is crucial to the lives of so many Americans.
For you, it may be smart to plan for reduced benefits just in case, but I don’t think you should be planning to not get any at all at this point.
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Disclaimer: none of this is advice, it is just for informational purposes. Talk with your financial planner before implementing any of these strategies.