As a nation, we are poor savers. According to a 2016 survey by the GOBankingRates, 56% of Americans have less than $10,000 saved by retirement1, while Social Security benefits represent about 34% of the income of the elderly2. What’s more, among elderly beneficiaries, 48% of married couples and 71% of unmarried persons receive 50% or more of their income from Social Security2.
With so many people relying on Social Security, there is an underlying question of its long-term solvency. Sadly, numbers indicate that the current program is not sustainable and something has to give. The workers contributing to Social Security for every beneficiary are down from 5.1 in 1960 to 2.8, with further estimates that the number will drop to 2.22. Benefits are expected to be payable in full only until 2034, at which time, the current taxes would be able to cover just 79% of scheduled benefits3.The good news? For those currently receiving benefits or about to retire, we do not expect your benefits to be cut.
There are many reform items that could address the issue. These include:
- Increasing the Retirement Age. Currently it is 66 and will rise to 67 for those born in 1960 and afterward.
- Increasing Social Security Tax. Currently, the total Social Security tax is 12.4%, where the employee pays 6.2%, while their employers pick up the other half (self-employed individuals pay the full 12.4%). An increase of 2.66% would eliminate the current deficit3.
- Increasing the Income Ceiling. This is currently in place and we saw an increase from $118,200 in 2016 to $127,200 for 2017. This increase equates to an additional $539 in taxes for W-2 employees and $1,178 for self-employed individuals.
- Means Test. This would be a new initiative that would reduce or eliminate benefits for those workers whose income passes a certain threshold.
- Elimination or Reduction of Cost-of-Living Adjustments. The past few years have seen little to no increases in current benefits paid to retirees, you could see this trend continue.
- Taxable benefits increase. Today, over 85% of benefits are taxable and this amount could be further increased to a point where all social security benefits are taxed.
While we predict a combination of these to be proposed, it is important to note that the best financial plans center on a comprehensive strategy and a holistic evaluation of all retirement assets. In fact, combining Social Security income with a tax-efficient withdrawal strategy can make your money last longer. And that’s the most comforting news.
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1 Kirkham, E. (2016, May 14). 1 in 3 Americans Have $0 Saved for Retirement. GOBankingRates.
2 Anon. (2017). 2017 Social Security Fact Sheet. The United States Social Security Administration.
3 The Board of Trustees of the Federal OASDI Trust Funds. (2016, June 22). The 2016 Annual Report of the Board of Trustees of the Federal OASDI Trust Funds. The United States Social Security Administration.
Fee-based planning is offered through Focus on Success, LLC, a Kentucky Registered Investment Advisor. Third party money management is offered through ValMark Advisers, Inc., an SEC Registered Investment Advisor. Securities are offered through ValMark Securities, Inc., member FINRA & SIPC (130 Springside Drive, Suite 300, Akron, Ohio 44333-2431; 1-800-765-5201). Focus on Success, LLC, is a separate entity from ValMark Securities, Inc., and ValMark Advisers, Inc.