• Mark Beaver, CFP

Can We Rely on Social Security?

“The reports of my death have been greatly exaggerated.” -Mark Twain

For years, many Americans have doubted the likelihood of receiving Social Security benefits by the time they reach retirement age. This is especially common for millennials and Gen Xers. However, like the (albeit, slightly misquoted) Mark Twain quote above, those fears are exaggerated.

A recent Trustee Report by the Social Security Administration on the health of the program has reignited these fears. As the report found in 2017, this year’s analysis estimates that the system will be insolvent by 2034. This point seems to be one causing much of the confusion. This, while not being great news by any means, does not mean Social Security will disappear in 2034. It means that the trust fund that supplements the program will run out at that time, leaving only contributions from payroll taxes to foot the bill. So, if no changes are made between now and then, all Social Security benefits would be reduced by 21% (Source: SSA.gov). Not a great situation, but it doesn’t mean the death of Social Security.

How Social Security is Funded The bulk of Social Security benefits are funded by payroll taxes. Typically, you pay 6.2% into Social Security each paycheck and your employer also pays 6.2% on the first $128,400 of wages in 2018 (if you’re self-employed you pay both, 12.4%). This is one of the reasons the program is under pressure; with baby boomers retiring, there are less workers paying in and more retirees taking out of the system. Social Security has a trust fund that can be used to supplement this gap, but it is not enough to sustain it long-term.

Should We Plan on Getting Only 79% of Our Benefits? Planning for the uncertainties of the future is always a challenge and now Social Security seems to be a new uncertainty. Planning on a reduced benefit may be a prudent thing to do, but do not discount it completely.

Can it be Fixed? There are many “levers” lawmakers can pull to prolong the health of Social Security. They could increase the amount of income subject to payroll taxes, increase the retirement age of younger workers or increase the tax on the benefits themselves. Notice that each time I said “increase” in the previous sentence it would mean a decrease is benefits to some percentage of the population. None of the options will be popular, but there are options. The Committee for a Responsible Federal Budget created an interesting tool that allows you to see the impact some of these changes would make that is available here.

Hopefully lawmakers will start working on solutions now, rather than delaying. The longer the issue goes unaddressed, the harder it will be to fix, which means more dramatic actions will be necessary. Congress isn’t known for being very proactive, but hopefully they can realize the importance that time plays in this case.

In Conclusion With all of that being said, yes, Social Security has some issues, but it will be around in some way into the future. While discounting benefits for retirement planning purposes may be prudent, we remain confident that some changes will be enacted that will bridge the gap - hopefully sooner rather than later. In any case, Social Security is not meant to be your sole retirement income source. Proper financial planning should factor in all retirement income sources and determine how much you need to save to meet your specific goals.

For more information:



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