A lot has changed in the workforce – and human longevity – since the Social Security system was established in 1935. Nearly a century ago, retirement arrived at age 62, and many people passed away by age 65. Retirement was three years, not twenty-five or more. Today, lifespans extend much longer. An estimated one-third of people will reach age 93. Back then, there were approximately 135 workers to support each retiree. Nowadays, there are just three workers for each retiree. This is why we hear about the concerns surrounding the long-term health of Social Security. 

Lawmakers are observing similar dilemmas around the globe. Last spring, the President of France increased the retirement age in that country from 62 to 64. Protestors filled the streets. This is one of the reasons why Congress has been unwilling to deal with what is a known future problem. 

What can be done? Social Security is funded by a payroll tax that funds a national trust. By law, Social Security can only make payments from the existing funds in the trust. There are lots of ideas of ways to strengthen the system, but there is no consensus yet. Any changes to the system will have to involve bringing in more tax revenue, reducing expenditures, or a combination of the two. Congress knows such changes are unpopular which is why they have kicked the can down the road. If Congress does nothing on this issue, the Social Security Administration estimates the trust fund will deplete in 2033, requiring monthly payments to reduce across the board by an estimated 25%.ⁱ We think the most likely scenario is that Congress waits to act until voters are really focused on the issue and demanding resolution.   

Often, we hear concerns that Social Security will go away, but as stated above, if changes are not made there will be a reduction of benefits not an elimination.   

Social Security for Each Decade

Acknowledging that changes are needed for Social Security, each generation can take action to mitigate the impact on personal finances: 

• Current Retirees –Social Security is likely to continue for current retirees. We believe that when Congress finally does act, they will devise a plan that does not change things dramatically for most people who are then receiving Social Security benefits. 
• Late-50s and 60s, Retirement Ahead – With time yet before Social Security would be required to make changes, this is an opportunity for prudent financial planning. The next ten years provide a catch-up window. In fact, people ages 50 and older can take advantage of catch-up contributions within retirement accounts. 
• Late-30s, 40s and 50s, Mid-Career – Often considered prime earning years, these are also prime years for pursuing financial independence. Because Social Security may undergo changes in the decades ahead, it is smart to reduce reliance on those monthly payments. As much as possible, make saving and investing a priority by maxing out contributions to retirement accounts. 
• Mid-20s to Mid-30s, Career Growth – Early career can be carefree, but as we add new components to life – graduate school, marriage, house, children – the financial stress can compound. Still, our younger years are the best time to firm up a financial future. Early saving can more than make up for any changes that result in Social Security in the decades ahead.  

Yesterday was the best time to begin pursuing financial independence, that means today is the second best. Simply put, financial independence is a monumental goal. Deep personal satisfaction is gained in achieving a future that is not reliant on whatever may happen with Social Security.  Financial independence requires discipline, focus, and delayed gratification. It also takes a plan. 

Planning is our specialty. Our greatest joy is to walk alongside people as they pursue and achieve their financial goals and dreams.  We can help you establish and pursue an investment objective that prioritizes financial independence. If we can help you, your friends, and loved ones build a financially independent future, please contact us today. 

ⁱ https://www.mercatus.org/research/data-visualizations/how-many-workers-support-one-social-security-retiree 

ⁱⁱ https://www.mercatus.org/research/data-visualizations/social-security-trust-fund-exhausting-faster-expected 

Disclaimer:

The information provided in this blog post is for general informational and educational purposes only. It should not be construed as personalized investment, legal, or tax advice. Please consult with your financial advisor, attorney, and/or accountant for advice specific to your individual situation.

Disclosures:

MarsJewett Financial Group is not affiliated with or endorsed by the Social Security Administration. All information regarding Social Security is based on publicly available data which MarsJewett Financial Group believes to be reliable but for which they provide no guarantee of accuracy or completeness. The projections and opinions expressed regarding potential future changes to Social Security benefits are speculative and based on MarsJewett Financial Group’s current political and economic analysis. There is no guarantee future events will match these projections. Any mention of specific investment products, asset classes, or securities does not constitute a recommendation by MarsJewett Financial Group. The suitability and risks associated with any investment or strategy must be reviewed on an individual basis. Investing involves risk of loss including loss of principal. This content is provided purely for informational purposes and should not be construed as solicitation to buy or sell securities or investment advisory services offered by MarsJewett Financial Group. Past performance does not guarantee future results. Past investment performance is not a guarantee or predictor of future investment performance.