As you look forward to retirement, you probably assume (as many people do) that Social Security will comprise a portion of your future income. After all, you’ve been paying into the system all these years.

On the other hand, you might have heard the news reports, political debates, and rumors about Social Security “running out of money”. Since the story can change significantly depending upon who is telling it, we wanted to take this opportunity to clarify the situation.

So, what is going on with Social Security?

Social Security is not exactly “running out of money”. Hopefully, hearing that news brings you relief. Most of the benefits paid each year come from tax revenue gathered that year. However, there is a bit of a gap between incoming taxes and outgoing benefits, so the extra money needed is taken from two trust funds. Those trust funds are set to run dry by about 2034, so a budget shortfall is expected.

How much of a shortfall is expected? After 2034, incoming taxes will cover about 79 percent of outgoing benefits. So, the current issue is that policy makers are trying to decide how to gather revenue for the other (approximately) 21 percent.

Population shifts are a large part of the equation. Three things are happening, with regard to population demographics, that will affect this situation:

• Millennials are having smaller families, and the birth rate is actually below replacement level. That means fewer taxpayers and less incoming taxes in the next generation of workers.
• Currently, 2.8 workers support each person on Social Security. By 2035 that number will drop to 2.1 workers for every beneficiary.
• Baby Boomers are beginning to retire. In 2017, we had about 48 million retirees in the US. By 2035 we will have about 79 million retirees.

So, what will retirees do? Social Security makes up about one-third of all retirement income in the nation. We know that the program is intended as a supplementary income, and should not be relied upon to fully fund retirement. However, that is the reality for many retirees. Others might not rely as heavily upon their benefits, but still need them.

The situation is not as dire as the media reports and rumors might have led you to believe. On the other hand, it’s no small matter, either. Politicians and policy makers are scrambling to fix the budget shortfall by 2034 and ensure that benefits will indeed be paid as planned. In the meantime, continue to meet with us to discuss your own retirement savings strategy.