With the talk of the demise of Social Security and not having any funds available for retirees, are there other options?

Asked by Elaine

2 Answers

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Answered by Charlie Donaldson, MBA in Newark, DE
Great question Elaine.
Talk of the "demise" of social security is largely due to the misunderstanding of the current social security funding. Here’s the deal:

Money collected is 1st used to pay benefits and the “left overs” are placed into a trust fund. The trust fund earns interest. Today, money is collected from workers PLUS the interest paid on the trust fund is insufficient to coverage current payments. Thus, the trust fund is being depleted.

The tax collections plus interest plus the trust fund assets will last in their current form until the year 2031. From 2031 through 2090, tax collections will fund 72% of the current program.

So, here’s the “other options”. The government will have to make adjustments to the current program prior to the year 2031. The sooner they make the adjustments, the better (But that’s not how our government typically operates.).

What adjustments? They can raise taxes, they can change the retirement age, or they can reduce benefits. What will they do? No one knows. I would suggest that they will do some combination of all three.

I would be willing to place huge bets on a few things:
1. SSI isn’t going anywhere!
2. Those currently on SSI will see NO change to their benefits.
3. Those close to their full retirement age will see NO change to their benefits.
4. Those who are currently in their teens & 20’s will ABSOLUTELY have different benefits compared to what they have now.
5. As it currently stands Social Security Insurance is still the BEST insurance policy in the world. It includes Old Age, Survivorship, & Disability Insurance. Thus the acronym OASDI.

I hope this has been helpful. Please let me know if you have any questions.
Charlie Donaldson
| 08.25.15 @ 22:10
Comment 1  
brownss123 — Charlie, Where is all this money right now? These so called "leftovers" that are safe and totally protected by Al Gore's lockbox, right? I'm afraid not Charlie. That money is all gone, there is no lockbox, there is no money, it all comes from general revenues as the money comes in and is spent immediately. | 06.01.16 @ 17:08
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$commenter.renderDisplayableName() — {comment} | 10.27.16 @ 18:57
Answered by Tim

I'm not a finance guy, I'm an engineer -- I do numbers and build things that work. I also live in the real world. Here are my predictions and advice:

Within the next 4 years,
1. The social security withholding will likely rise from 6.2% to 7.2%.
2. The the cap on withholding will rise from the present $118,500 to either $200K or be uncapped (charged on every dollar of earned income).
3. Dividend, capital gains and interest earnings will likely see some kind of withholding for SSI.
4. Early out at 62 and full retirement at (wherever it is this week) will rise by a matter of years (probably early out at 65 and full benefit at 70).
5. Ultimately, there will be means testing (so, working and collecting will go by the wayside, and you may actually see the IRS getting into your retirement account balances to see if you really need SSI).

My advice:
a. Put aside and maintain an adequate emergency fund so that you can take care of the oops! moments without plowing into retirement savings.
b. Use a 401K if it is available, and if your employer provides matching funds, take full advantage of this. You can currently plug in up to $18,500 per year if under age 50, and a bunch more if over 50.
c. Hedge your bets with a Roth IRA, you can only put in $5,500 (again, under age 50), but the principal and proceeds are all tax exempt upon eventual withdrawal.
d. Pray for intelligent leadership in Washington in the future. I don't have my hopes too high on this, but we could get lucky. | 10.30.15 @ 18:30
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$commenter.renderDisplayableName() — {comment} | 10.27.16 @ 18:57
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