Our Social Security system was enacted during the Depression, alongside several other landmark pieces of legislation, namely those establishing the SEC and the FDIC, not to mention Glass-Steagall, that have defined the way Americans have saved and invested ever since.
Ida May Fuller collected the first Social Security check ever mailed. She had retired from her job as a legal secretary in November 1939 after having paid a total of $25 over the previous three years into the new program. Her first check was for $22.54 so she “broke even” in less than two months. Not bad. The fact that she lived until 1975 and collected a total of $22,888 makes it even better (for her).
Not an actuarially sound beginning, perhaps, for Social Security. Indeed, that type of story is the basis for a lot of today’s angst. The older generations are going to drain the system and there won’t be anything left for me.
The worry is understandable. Pension plans are getting phased out in much of Corporate America. Even public employees are seeing their once-vaunted pension benefits getting reduced. With that, the “three legged stool” of retirement planning started to tilt. The other two legs, Social Security and personal savings, are also under pressure and the stool is creaking pretty loudly these days. It is about to collapse?
In a word, no. In 2010, the system began paying more than it brings in. And if nothing changes, the excess money that Social Security now has in its famous “lockbox” will be gone in 2033. But the system has been far closer to “broke” in the past and it was tweaked just in time. In the 1980s, it was just a couple years removed from running out until Congress made significant changes. And there have been small modifications along the way, as well. The rate on the payroll tax, which funds Social Security, has been raised 16 times over the years.
Even in a worst-case scenario—that is, no changes get enacted and it really runs out of money in 2033—it would still be mostly funded as a pay-as you-go system, at least initially. Bottom line: It will be a major part of retirement income for anyone over the age of 40 today at the very least, and most likely for generations to come.
Having said that, there is a lot of misinformation regarding this program. And not just among clients. According to industry surveys, and our own anecdotal evidence, many advisors don’t know much about it either. Which is why we’ve decided to pull our resources together and bring you “Simplifying Social Security.” We’ll be adding tips, strategies, stories, videos, and sending out a separate email with the highlights. We’ll also be offering some suggestions of our own on changes that can be made to the system. You can give us your suggestions (or strategy tips or horror stories, we like them all) on our LinkedIn Group.
In today’s environment, with the right knowledge at hand, you’ll be able to help your clients as they struggle with their own fears of outliving their money. Enjoy the stories and videos and check back for updates.