Path to Robust Retirement: Social Security Program Stretched Perilously Thin!
Original: June 22, 2019; Update: Oct. 1, 2019.
By 2030, all the Baby Boomers will be over 65 years old (Poling, 2019). Expected to live longer than any previous generations, this age cohort of Americans will increase to 79 million by 2035 (Basher, 2019). But with longer life expectancy (Poling, 2019), the US government would have to draw down its assets in order to sustain its promised benefits to its retirees. So severe are its financial obligations, the Social Security's trust fund is projected to "run out of funding" within the next 15 years - short of a considerable political or financial solution.
Social Security program was instituted back in the early 1930s as a financial security blanket for the retirees. Over time, however, the program has grown beyond its original goal of "just" a retirement program. Nowadays, the Social Security program affects "the lives of nearly every American," - spanning their life cycle from cradle-to-grave. It extends benefits throughout one's life, "whether at the birth of a child, the loss of a loved one, the onset of a disability, the transition from work to retirement," or unto the end of life (Williams, 2019).
Though most of the Social Security program obligations are in the form of retirement benefits to retirees, its scope has increased over time to provide benefits for others, like Individuals with disabilities; Spouse or child of SS recipient; Divorced spouse of SS eligible or recipient; & Spouse or child of deceased worker; Divorced spouse of deceased worker; or dependent parent of deceased worker. For those who cannot work due to physical or mental condition (expected to last at least one year), they may be eligible for Social Security disability benefits. If their disability worsened unto death, their dependents may become eligible for SS disability benefits. (Williams, 2019). Qualifying for SS disability benefits is far more stringent. Statement(s) from medical providers are not sufficient for eligibility - www.socialsecurity.gov/benefits/disability (Williams, 2019).
In regard to Social Security benefits, the program is designed only to replace a percentage (33% or a one-third) of one's pre-retirement income, based on the worker's lifetime earnings. Therefore, the SS retirement benefits collected depend on two key variables: the worker's total lifetime earnings and time-to-start collecting benefits. If a worker starts benefits after full retirement age, the total benefits collected would be higher. However, if a worker start collecting benefits earlier, the amount would drop accordingly. According to financial advisers, a worker will need about "70 percent of pre-retirement income" to sustain a comfortable life in retirement, including Social Security benefits, investments, and personal savings. More about retirement benefits, visit www.socialsecurity.gov/benefits/retirement (Williams, 2019).
Based on its "creative" underpinning math principle, retirees' social security benefits will shrink by 20% across the board. "Unfathomed in the country of plenty," such crisis of almost unimaginable proportions will undermine the retirement of tens of millions of Americans? As Alicia Munnell the Center for Retirement Research at Boston College) asserts, retirees will not get "their Social Security checks ... promised." With "more people live to their late 80s / 90s and overall birth rates decline (Lane, 2019), how will have the workforce to sustain the Social Security program viability. The US births rate fell to its lowest level in 32 years in 2018 (Tanzi and Hagan, 2019).
Pillar or Ponzi of Retirement: Social Security is the central pillar of retirement for Americans. It can also be considered a "Ponzi" scheme, similar to a pyramid scheme in which both are dependent on new contributions to fund the earlier backers' benefits. Regardless of the classification, the program has long suffered from more cash outflows than inflows. Consequently, deep benefit cuts are projected, with disastrous effects driven by "unexpected" risks in both number and life expectancy. For number, there are more than 10,000 qualified baby boomers for social security benefits each day, though not enough younger workers to sustain the system. For life expectancy, the number of Americans age 65 or older will increase from 49 million now to a projected 79 million by 2035 - higher than the projected 76.4 million Americans of age 18 and under (Basher, 2019). The result is a much poorer Social Security.
Effect of Cuts: Based on current projections, the Social Security trust fund would face a budget shortfall due to lack of funding in 2034. Now if Congress "authorizes" paying retirees' benefits from the Disability Insurance Trust fund, the shortfalls in Social Security would start in 2035. The average 20% reductions, however, would increase to 25%, if current appropriations or economic projections change, according to NY Times analysis of Social Security. For example, if a woman with average annual earnings of $51,795 (current dollars) retires at age 67 in 2037, she will be entitled to $27,366 (inflation-adjusted benefits). However, any projected shortfall in the Social Security trust fund would cut her social security payment to a low $21,669 - a 21% cut.
Another Effort, Another Failure? The US government has made some efforts over time to rein in Social Security benefits. Back in 1981, as the program derailed off its "solvency" tracks, the Conservatives on the Hill proposed strategies to prune down such "closet socialism" program. For scaling back the Social Security program, drastic reductions in retirees' benefits must take place. However, following an outcry from older Americans over possible cuts, the Democrats and Republicans announced a "concessionary measure" whereby it will keep the Social Security program intact.
As a result, the US Congress & White House concerted an action plan to save the Social Security program. Rather than the immediate cuts in Social Security checks, they jointly agreed to reduce benefits via a combination of changes in age threshold and taxes. The social welfare measures include a gradual delay of the standard retirement age from 65 to 66, and then to 67. The tax increases followed to "bolstering cash flows," leading to a current surpluses of $2.9 trillion in the Social Security trust fund. Such effort was seen as key to providing some respite for retirees and politicians, alike.
Third Rail of American Politics: Since 1982 bipartisan "no-change in benefits" agreement, the Social Security program has been known as the "the third rail of Americans politics." A problem decades in the making, the program is now "too dangerous" to fail. The draw-down in the Social Security assets (reserves) would undermine the cash flows necessary to fund its liabilities (benefits). This would have a "devastating" complicating effect for over half of retired Americans who are heavily dependent on Social Security for their retirement, and for over a quarter of working Americans with nothing saved for retirement. It also would have an effect on so many citizens who are much more dependent on social security for their income.
Underpinning Problems: Dr. Robert D. Reischauer of the Urban Institute is concerned about the financial viability of the Social Security trust fund, given the US Congress fiscal responsibility or lack thereof. He maintains that the politicians rarely act, with no crisis at hand. He adds that waiting for another looming crisis to take shape would be disastrous. Dr. John Cogan of Stanford University directs our attention to the looming crisis by pointing out the underlying problems of Social Security. With benefits continue to outstrip revenues, cuts will be inevitable, and "therefore unpalatable". The only solution, he contends, would be to slow down the growth rate of guaranteed benefits to future recipients.
Congress Polarization: Democrats in Congress are calling for an increase in Social Security benefits to be funded through higher taxes on the wealthy Americans. According to Stephen C. Goss, Chief Actuary of Social Security, the Democrats strategy would reduce the program's financial shortfall over time. Conversely, however, the Republicans in Congress are pushing for "sharp" reductions into the "Safety Net" programs like Social Security and Medicare. Underpinning such strategy is the debilitating impact of these two "entitlement programs" on the United States financial and social well-beings.
Conclusion: One can surmise hard choices; either delaying retirement, working longer, or simply surviving on less. This is unless the Congress and the White House reach an agreement before the trust funds are depleted
Exhibit A: How Well Do You Plan?
We all talk about planning for retirement. But, how do we plan "the planning" for it? We may succeed, if we think of retirement as both "a time & project" management long-term operation, based on specific financial, personal, and life goals. Such approach will help us create a long-term time calendar to record major events & financial obligations. From there, we can create a monthly schedule of income and expenses. Periodically, it is crucial to revisit our plan to "work the plan," including a to-do list for major events, opportunities, and setbacks.
Diagnostic Model: The first step is to run a diagnostic model which evaluates our planning ability to maintain a time and project management model. Choose the best answer for each question on a scale of 1 to 5, with 1 - Never; 2 - Seldom; 3 - Sometimes; 4 - Often; and 5 - Always. At the end of this diagnostic model, tally the scores.
- How often do you plan in an effort to keep life from running out of control?
- Do you put daily plans on paper/system?
- Do you allow flexibility in your plans?
- How often do you accomplish all you plan for a given day?
- How often do you plan time for what matters most of you?
- How often is your daily plan destroyed by urgent interruptions?
Diagnostic Interpretation: Once you tally your scores, compare your scoring to the interpretation scoring below.
6-10: Terrible Planner - You should consider using new tools and methods for effective planning. First step might be to invest in an inexpensive "time management" system.
11-15: Below Average Planner - You may already have a planning system but must leverage for more effective planning. This will help reducing the stress, caused by lack of control in your life.
16-20: Average Planner - Your planning system works, but can be improved. There is a need to focus on priorities, in order to manage urgent interruptions.
21-25: Above-average Planner - Your planning system works well, but might need periodic reviews for sound planning around what matters most in your life.
26-30: Excellent Planner - Your planning system is effective, helping to foster the serenity due to taking charge of your life. Be sure you are in control of your planning rather than your planning being in control of you.
References:
Alliance for Lifetime Income. (2019, June 22). Retirement in America Today: Thinking about Longevity. NY Times. https://www.nytimes.com/paidpost/alliance-for-lifetime-income/retirement-in-america-today.html
Basher, Cern. (2019, June 22). Graying in America: Half US over 38. Census Bureau. https://www.dhirubhai.net/feed/news/greying-in-america-half-us-over-38-3961601/
Cheng, Kris. (2019, January 18). Hong Kong gov’t announces concession on benefits for elderly people following outcry over cuts. Hong Kong Free Press, https://www.hongkongfp.com/2019/01/18/hong-kong-govt-announces-concession-benefits-elderly-people-following-outcry-cuts/
Lane, Thomas J. (2019, June 22). Greying in America: Half US over 38. LinkedIn. https://www.dhirubhai.net/feed/news/greying-in-america-half-us-over-38-3961601/
Leibovich, Mark. (2019, June 16). Field of Dreams - How Do You Unite A Fractious Democratic Base And Plot A Winning Strategy Against Trump?. The New York Times Magazine. p. 22 - 25, 50
Graying in America: Half US over 38. (2019, June 22). LinkedIn. https://www.dhirubhai.net/feed/news/greying-in-america-half-us-over-38-3961601/
Poling, Stacey. (2019, June 22). Graying in America: Half US over 38. Census Bureau. https://www.dhirubhai.net/feed/news/greying-in-america-half-us-over-38-3961601/
Rosen, Jody. (2019, June 16). The Day The Music Burned - In 2008, the world's largest record company lost much of America's musical heritage - and kept it mostly a secret. Until now. The New York Times Magazine. p. 22 - 25, 50
Sommer, Jeff. (2019, June 13). Retirees at Risk: Crisis Looms For Social Security Recipients. NY Times, p. B1, B4
Sommer, Jeff. (2019, June 16). News: Social Security nears a crisis in funding. The State, Vol. 129, No. 119, p. 9A - www.TheState.com
Steverman, Ben (2019, June 28). Wealth: Americans Lose Trillions Claiming Social Security at the Wrong Time - Most retirees should wait longer to access their benefits, researchers find. Some should claim them sooner. Bloomberg. https://www.bloomberg.com/news/articles/2019-06-28/americans-lose-trillions-claiming-social-security-at-the-wrong-time
Tanzi, Alexandre & Hagan, Shelly. (2019, June 20). Business: Half of Americans Are Now Over the Age of 38. Bloomberg. https://www.bloomberg.com/news/articles/2019-06-20/half-of-americans-are-now-over-the-age-of-38-census-data-show
Williams, Tony (2019, June 13). Understanding social security benefits. The Northeast News, p. 7
Wilson, David. (2018, March 14). Baby Boomers are Bringing Changes to America. Can We Cope? LinkedIn. https://www.dhirubhai.net/pulse/baby-boomers-bringing-changes-america-can-we-cope-david-wilson/