What’s in the cards for Social Security trust funds?

| January 08, 2015

Mike's Blog

Every year, a report is provided to Congress on the state of the program. This report, contains valuable information about the health of Social Security and how your benefits may be affected.

Social Security is made up of two parts. The first part is called Old-Age and Survivors Insurance (OASI) program and is for retired workers, their families, and survivors of workers. The second part is called the Disability Insurance (DI) program and is for disabled workers and their families. There’s an account for each one (a trust fund) that holds the payroll taxes that are collected to pay benefits. By law, money not currently needed must be invested in Treasury bonds guaranteed by the U.S. government. It’s possible for Social Security funds to have reserves that can be used to cover benefits if payroll tax is not enough.

What’s in this year's report?

The short version is OASI fund has reserves to pay until 2034. DI has enough to last until 2016. Yes I said 2016! Combined, the costs to run both funds will exceed income in 2020 and so reserves will be relied upon. If Congress does nothing (are we taking bets here?), total trust reserves will be broke in 2033. Umm, that’s 18 years, not that far away. At that point payroll taxes will be the only game in town to support it and its projected to cover only 77%.

How would you feel if your employer said, “I can only pay you 77% of your paycheck from now on!!?” Somebody get a rope!

So here we are in 2015 and the DI fund is projected to be broke next year in 2016! We don’t have until 2033, and this is why Congress needs to take action ASAP.

With more and more baby boomers retiring every second and people living longer the conditions continue to worsen.

Obviously something needs to be done…

And there is a lot of talk and proposals, some of which include: increasing payroll tax, raising the wage base (now at $118,500 in 2015), raising full retirement age, reducing future benefits, and monkeying with the benefit formula and cost-of-living calculations. Pick your poison!

In the meantime

Keep an eye on new developments but also be proactive in understanding your own benefits, and what you'll receive based on current law. Consider different income scenarios when planning for retirement. It boils down to saving as much as possible in all sources available, particularly company sponsored retirement accounts because of their favorable tax status and potential employer matches and profit sharing. Also contribute as much as possible to IRAs. And remember, no matter what the future holds for Social Security, you’re in charge of your own financial future so be sure and deal yourself a nice hand.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.