Let's Run the Numbers



The Social Security (SS) system was created in 1935 with the objective of helping individuals and families cover their basic living needs once they reach retirement. Essentially, the program is a forced savings for retirement. However, there is growing concern about the current health of the system.

One reason for concern is demographics. Individuals are perpetually increasing their longevity either due to changes in genetics and/or advances in medicine.  This may or may not have been efficiently considered at the creation of SS. However, now that there are more people living longer this means more benefits are being paid out for longer periods.

Each year the Social Security Administration releases their Trustee’s report ( that addresses the financial status of SS.  Contained in the 2019 report is a statistic detailing the reserves for the respected trusts: Old-Age and Survivor’s Insurance Trust (OASI) as well as the Disability Insurance Trust (DI). 

Currently, the SS taxes we pay into the system are sufficient to pay out all of the benefits as well as add to the reserves from which the trusts can pay future benefits. Yet, there is concern regarding how long these reserves will last into the future.

The report details that the combined reserves are anticipated to be depleted in 2035, at which point the SS taxes paid in will cover only 79% of the benefits expected to be paid out.  When the reserves are considered separately the OASI Trust will run out in 2034 while the DI Trust will run out in 2052. Furthermore, the report forecasts that in 2020 the benefits to be paid out will exceed the SS taxes paid into the program for the first time since 1982.  These factors are creating additional cause for concern.

In spite of the uncertainty, there are options to fix the system. Common strategies debated include: increasing SS taxes, increasing maximum salary taxed for SS and increasing full retirement age, among others. These changes would all require legislative intervention.  Most experts believe the government will likely take action prior to depletion of the reserves; though what action will be taken and when remains to be seen.

On a positive note, SS is only one component of a recommended retirement plan. It is imperative to remember that SS was created with the intention of enabling survival in retirement. Thriving and surviving are on different ends of the retirement spectrum and the importance of saving towards retirement cannot be overstated.

One benefit of planning ahead for any projected changes in SS benefits is knowing that SS should not be the central focus of your retirement plan. Again, the system was designed to benefit those who have lesser average lifetime incomes than those with greater. For example, someone who averages $20,000 of income, may receive a $10,000 annual SS benefit whereas an individual averaging over $100,000 in income may receive a $30,000 annual SS benefit. This creates a difference in the benefit amounts as a percentage of income. 

The smaller SS benefit is a greater percentage (50%) of the lower income.  While the higher SS benefit is a lessor percentage (30%) of the higher income. This raises the responsibility of the higher income earners to save more money towards retirement if they want to replace a similar percentage of their income. This may be, in essence, another lesson in delayed gratification: The less you spend now, the more you can spend later (and not rely as heavily on a system facing uncertainty)!

Given the statistics discussed above, recent or soon to be retirees may receive over a 20% reduction in benefits after 2035. Additionally, younger workers may never see 100% benefits.

To provide some hard dollar perspective to the report projections, if you can expect to receive an annual SS benefit of $40,000 retiring in 2019 then by 2035 you can now anticipate an $8,000 decrease in your benefit. This of course ignores any cost of living adjustments along the way.

There is hope that the system will change in the near future as the cost is seemingly too great a burden but the extent of these changes remains to be seen. Having a financial plan to factor in the varied circumstances has never been more necessary. Proactively saving, delaying frivolous purchases, or even adjusting monthly budgets can have great impacts upon the likelihood of success in a financial plan.

In summary, SS can integrate into your retirement plan but it should not be your retirement plan’s foundation if your goal is to thrive not survive. Reacting to a 20% decrease in your income stream is never enjoyable. Establishing a plan is the first necessary step to overcome any shortfall in SS benefits before or after retirement.

About the Author

JT Trimble, Candidate for CFP® certification, joined YHB in August of 2018 and serves as a Client Account Manager. He is a regular contributor to Let’s Talk Investing and speaker at numerous events throughout the region. JT is a member of the Loudoun County Chamber of Commerce and the Financial Planning Association.

When to take Social Security Seminar

Are the news stories and media coverage about the current financial health of the Social Security system giving you more concerns than confidence that Social Security will be around when you need it? YHB Wealth is hosting a presentation on the current state of Social Security, how it may change in the future, and some strategies to consider regarding how and when you take your benefits. This is a must-see seminar for anyone currently retired, or planning to retire within the next five years. Register today to learn how Social Security should fit into your overall retirement plan!