5 Distressing Facts You Probably Don’t Know About Social Security
1. Cash Negative: Social Security went cash negative in 2010, five years earlier than anticipated, according to the Brookings Institute.
2. A Big Percentage of the Federal Debt: Social Security adds to the federal debt every year. The current amount of debt that is attributable to “Intragovernment Holdings” (the name given to various federal accounts, including the social security trust fund) is $5.5 trillion and growing. The total U.S. public debt is $19.8 trillion (as of 5.26.17). The social security trusts (and a few other accounts) add up to 27.8% of the debt.
3. Tax Cuts and GDP Growth Are Unlikely to Fix It: According to Fitch Ratings (in a press release in 2016), “The most immediate fiscal challenge is to restore the social security system - largely unaddressed by 2016 budget proposals - to a more sustainable state.” On May 25, 2017, Charles Seville, Fitch Ratings senior director and lead analyst on the US sovereign rating, wrote that “The President’s Budget’s proposal to eliminate the federal deficit and reduce the debt/GDP ratio over 10 years rest on an optimistic long-run growth assumption of 3%, which is unlikely to be realized.” Tax cuts are unlikely to generate a lasting and substantial boost to growth, in Fitch's view.
4. The Disability Fund Dried Up in 2016 and is Borrowing from Social Security. The Disability Insurance Fund has been borrowing from the Old Age and Survivors Insurance (OASI) Trust Fund since 2016 – just before the DI Fund was depleted (source: Social Security Administration). The DI Fund is predicted to be drained dry in 2022 (in just 5 years), if no changes are made.
5. Tapped Out in 17 Years. The Social Security Funds are predicted to be depleted by 2034, unless measures are taken to shore the funds up. The last time this was about to happen, in 1983, Congress saved the day with measures that are not predicted to work as well this time. This also assumes that the fund depletion doesn’t move faster than predicted, as happened when the Social Security system went cash negative in 2010.
With one bonus, Social Security Note.
Should You Wait Until Age 70 to Retire?
It’s easy to see why the government website and many mainstream media outlets encourage people to wait until 70 to retire, under the rationale that waiting offers you a larger annual stipend. Waiting to retire helps the system stay afloat. However, if you do the math, then you realize it takes 12-20 years to make up the amount you forego when you wait that long. (If you wait until 67 to retire, instead of age 62, you could be giving up $100,000. If you wait until age 70, you could be passing up over $200,000.) If you’re an active income-earner, it won’t add up to retire early, when you could earn your full salary instead. However, if you’re out of work, the early retirement could be a Godsend.
Incidentally, the Brookings Institute reminds us that public pensions went cash negative over 25 years ago, in 1985. (2003 was one year when distributions were less than contributions, however, the majority of the time has been in the red.)
The bottom line is that if you’re counting on getting a fat check from your company or the government in retirement (or disability), your expectations are likely to hit a reality check in the years to come. Many pensioners, particularly those in the auto manufacturing and airlines industries, have already learned this the hard way – having received a big cut in the pension, health care and other post employment benefits that they were promised, but are not receiving. Private pension promises are rewritten and cut in bankruptcy proceedings. Politicians are having a hard time announcing reform to the public pension system, which is one of the big reasons why the U.S. debt is increasing each year.
The bankruptcies in the private system remind us that borrowing from Peter to pay Paul always has an expiration date. Let’s hope we can all come together to resolve the problems before that happens. Until then, it’s a good idea to have a Plan B for your retirement future. There are many ways that you can do a better job of providing for your future, while living a richer life today, by shoring up your assets, and making smarter choices in your energy, budget and savings expenses and strategy. Call 310-430-2397 to learn more about Natalie Pace’s:
Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She blogs on Huffington Post and Medium, and is a frequent guest contributor to national news shows and magazines. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.