A few weeks ago, the 2013 Trustees Report on Social Security was released, confirming once again that the Social Security system continues to pay out more than it takes in, remaining on a path that is ultimately unsustainable. Yet the details underlying the report reveal a more profound reality: that while Social Security as it is currently constituted is not viable in the long run, the downside of depleting Social Security is far less severe than we often make it out to be.
The reality of the Trustees Report is actually that, even if we do nothing to resolve Social Security in the coming decades, that the system will still be able to pay out 77% of its projected benefits in 2033 when the trust fund is depleted, and continue to pay out more than 70% of its projected benefits for the remainder of the century. In other words, even if we do nothing to fix the system at all, today's Generation X and Y young adults would still be anticipated to receive about 3/4ths of their anticipated benefits for their entire retirement.
And that's if nothing is done. If instead the woes of Social Security ultimately are addressed, through some combination of current and/or future benefit adjustments, and increases in the Social Security payroll tax rate, wage base, or the taxation of benefits, the shortfalls decline further and the ability to pay future benefits rises. Which means that ultimately, the most likely future outcome is a haircut of less than 23% of benefits for today's young adults, and that most future benefits will in fact still be funded. As a result, it's important to recognize the real state of the Social Security system, to ensure that clients receive appropriate advice in light of what isn't, and is, likely to be there when the time comes.
