For Mark Roberts’ Use: For most people, retirement income will be derived from several sources. Hopefully, you’ve been contributing faithfully to a retirement account of some sort, such as a 401k or IRA. But you’ve always been paying into the Social Security system all of these years, and you expect your benefits to be waiting for you when you retire.
We hope that will be the case, and there’s certainly no reason to panic at this time. However, it is important to know that the Social Security system is definitely facing some strain in coming years.
Several factors are converging, to create a “perfect storm” for our national retirement system. Better health care and longer life spans are a great thing, but this does mean that more seniors will be drawing benefits from Social Security, and for a longer period of time. Baby Boomers have begun to retire, and most experts predict that this generation will live for another twenty or thirty years after their target retirement dates.
At the same time, people are simply not having babies at the rate they once did. This means there will be fewer workers ready to step up and take on the tax burden of our collective social programs – including Social Security.
Just take a look back at statistics from the past: In 1950, each person drawing Social Security was balanced by 16.5 active workers paying into the system. In 2015, this number had dropped to 2.8 workers per beneficiary… And by 2035, that ratio is forecasted to be 2.1 workers per Social Security recipient.
Considering that most of your benefits are actually paid from taxes coming into the system each year, it’s easy to see how these numbers present a problem.
Policy makers and politicians are currently analyzing the strain on Social Security, and making adjustments to account for these changes. We’ve already seen the full retirement age rise from 65, to 66 or 67 depending upon birth dates. It is possible that the full retirement age could be raised again in the future.
Other options, such as raising taxes or making Social Security a needs-based system, have also been debated.
There is no way to predict exactly how the system will function twenty or more years from now, only that some changes are inevitable. That’s why we urge our clients to continue planning for other streams of retirement income, whether from retirement account distributions, other investments, or something else. We definitely don’t want you to worry about this issue too much, but do continue to meet with us so that we can examine all of your options.