What to tell clients about the Social Security trust fund
Clients are worried about Social Security running out of money, but the votes of the 70 million people who receive benefits are likely to convince Congress to fix the problem, Mary Beth Franklin says.
Mary Beth Franklin Hi, I’m Mary Beth Franklin with the latest on Social Security. Let’s talk about that trust fund. I’ll tell you, between the political brinkmanship on Capitol Hill and the scary headlines, people are worried about Social Security benefits, whether they’re ever going to get them, whether they’re going to get the amount that’s promised.
Advisors are telling me that some of their clients are saying, I’m scared, I’m going to grab my benefits as soon as I can at 62. Well, you know what? Grabbing Social Security benefits out of fear early is like selling stocks in a down market. The only thing you have guaranteed is you have just locked in a loss. So let’s talk about what that trust fund means.
The latest Social Security trustees report found that if Congress does nothing in the next 13 years, these Social Security trust funds that help fund benefits will run out of money. The date at this point is 2034. That’s a year earlier than the previous report.
Should you panic? No. First of all, this is the most popular and successful federal program in history. And more importantly, 70 million people vote. Congress knows that they will fix it might be 2033 before they get around to it, but they will fix it, probably with a combination of future tax hikes and possibly benefit changes.
What could they do? Possibly they could raise the full retirement age, which is scheduled to go to 67 in 2027 to maybe 70. But don’t panic. That would probably affect today’s two year olds. They’re probably going to live to 110 anyway. They’ll get used to it. Yes, we may see people paying more taxes on their wages or higher income retirees may pay more taxes on their benefits. Really, I don’t have a crystal ball. I don’t know what they’re going to do, but I am confident they are going to fix this problem.
What does it mean when the trust fund runs dry? Except the trust fund is basically a reserve of excess taxes they’ve been collecting for the last thirty five years. Around 2010, when the first of the Baby Boomers started retiring, there was no longer enough money just from tax revenue alone. So they paid benefits with tax revenue and a little bit of the interest they had been earning on the trust fund. That was fine for the last 10 years or so.
Now, in 2021, it’s still not enough money. So now they’re using the tax revenue, the interest on the trust funds, and for the first time in 2021, they will start tapping that trust fund. It’s going to get smaller and smaller until it runs out around 2034. That does not mean you won’t get your benefits. There would be enough money from ongoing FICA taxes to pay about 78 percent of promised benefits, but frankly, nobody’s going to be satisfied with that.
So I think you can bet your retirement on the fact that Congress will fix it sometime before then.
