May 01, 2019Individual Investment Management

Social Security Can be Fixed!
Why we should keep this valuable program.

The death of social security (as advertised) is vastly overstated.  News networks and "financial experts" desperate to sell advertising and attract eyeballs will often exaggerate the death of the program to attract viewers.

First a true story...    
This author has a good friend from college who lost her husband to colon cancer at age 27.  The husband passed leaving a wife of 4 years, a 1-month old baby, and a wife with no income (he was sole provider).  As sad as this situation was, my friend was able to sustain herself and a child with access to the program's death and disability clause preventing her from needing state aid (it's available to all widows).  Had it not been for this valuable clause, it would have been almost impossible for her to pay bills or provide for her child.

The Facts...    
At its current rate, it is widely agreed-upon by most non-partisan models that the program will become unsustainable around 2032. A recent study by the University of Pennsylvania Penn Wharton Budget Model (PWBM) forecasts that the program could cause debt-to-GDP ratios of 200% by 2048 - this is clearly frightening and unsustainable. Scary....but please read on....


At its current rate, it is widely agreed-upon by most non-partisan models that the program will become unsustainable around 2032.

To fund the program, the PWBM model suggested reasonable fixes:
1.  New Revenue:  Increase payroll taxes only 1.2%.
2.  New Cap:  Raise current income cap to $150k from $132,900.
3.  NO new taxes on earnings above $250,000
4.  Re-index inflation adjustments to a chained CPI.
5.  Raise retirement age to 70 from current 67 if born after 1960.

What This Means to YOU...
When our good friends in Washington decide to finally address the problem (which they will have to), the solution is probably going to be something sweeping and close to the PWBM model.  We believe the best approach for individuals going forward are:

1.  Your Savings:  
Try to save at least 15% of your income between the ages of 25-60.  This adviser has seen thousands of financial plans in my 20 years in the industry, and 15% is a good number for these assumptions.

2.  Your Accounts:
Try to incorporate accounts beyond just a 401k or IRA.  By using taxable brokerage accounts or Roth IRAs you will be able to draw from these accounts at reduced tax rates to offset program reductions.

3.  Your Income:  
Plan to need income to at least age 90 unless you have health issues.  Or have your financial planner do the same in their projections.  (We always go to age 90 unless instructed.)

Despite the doom and gloom, there are reasons to be positive about the program and its merits.  Social Security is a valuable program that keeps many from sliding into poverty, helps keep families whole, and can extend the life of your savings by acting as a supplement to your existing retirement savings plan.