Will Social Security Last?

The simple answer to the headline is yes. The longer answer is that it will need to evolve over time in order to survive…and it will. Social Security recently celebrated its 80th birthday which sparked discussion of its continued existence, and that on its current path could run out of funds in 20 years.

On a personal basis, earlier in my career I didn’t have a clue what the FICA deduction was all about on my paycheck. Upon examination I found out that FICA is:

Federal Insurance Contributions Act (FICA) tax is a United States federal payroll (or employment) tax imposed on both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for retirees, the disabled, and children of deceased workers.

So when I was younger I figured social security was a tax that gave money to “old, retired people”. I didn’t understand (or care) that my employer matched my contributions. What I did know was that I was happy when my salary exceeded the ceiling where money was taken out because my paycheck got larger once it did.

Now that I am wiser (a/k/a older) I appreciate that social security can provide a modest safety net for older and disabled Americans. However, today’s Millennials have little confidence in the long term ability of social security to fund future payments. In fact the majority think it won’t be there years from now when they reach retirement age. And just like me at their age, they spend little time thinking about social security other than being irritated on pay day that a bunch of money was being deducted.

So my advice to Millennials is as follows:

• Don’t sweat about Social Security—Have confidence that it will be there years from now, even if it is modified. Any politician who seeks to eliminate social security will be an ex-politician quickly.

• However, don’t count on social security to fully fund your retirement. It’s a start.

• Save like hell now since there are few pensions left in corporate America. The good news is that Millennials have an incredible opportunity that time and compounded savings can provide, see: A Penny Saved Is Seven Pennies Earned.

My advice to those nearing Social Security age is as follows:

• Look at your statements. Make sure they are correct

• Hold off taking social security at 62, and even at Full Retirement Age (currently 66) if you can. There’s a major financial advantage to holding off until age 70, if you are able—unless you really need the money now and/or have serious illness that may shorten your life expectancy.

• Understand the various strategies regarding “file and suspend”, and other spousal issues. They are complex. Take a visit to the social security office and spend time

Reports of the program “running out of money”, while mathematically true based on today’s assumptions, don’t take into consideration the fine tuning that will inevitably happen. So to the issue about whether the program will last….. the answer is of course it will. It would be a disaster to allow it collapse. And there are tactics to help stabilize the program and not run out of money in 20 years. Those fine tunings including raising the retirement age, changing the formula on cost of living adjustments, raising the ceiling on amount on which you pay…..and a combo of the above.

The good thing about shining a light on social security is that it makes Americans of ages more deeply consider all the issues related to retirement and do so at an even earlier age. With Americans living longer, retirement planning becomes far more important. Wise men and women consider the issues long before the reality hit them.

I’m still in my 20s in my head, though I have no idea who the older guy in the mirror is. But the guy in the mirror is at least starting to educate himself about longer term financial planning issues. 

Lonny Strum is the Managing Director of the Strum Consulting Group. Follow him on Twitter @LonnyStrum. For some of his other posts, visit his blogs Strumings and The Business Of Life.