News & Insights

Notice Something Missing from Social Security this Year?

by Chris Jaccard, CFP®, CFA on 11/11/2011

No Benefit Statements – Should You Worry?

About 6 months ago, the Social Security Administration stopped sending paper copies of “Your Social Security Statement”.  This familiar green and white form listed your work history and projected benefits – and was typically mailed 3 months before your birthday.

At the time they stopped the mailings, the SSA commissioner said the decision was made to save money, and that people under age 60 will receive statements only upon request.  To date, there still seems to be no way to request a paper statement or view it online.   Is this something to worry about?  Is there a plan to cut benefits to those of us under age 60?

Where we Stand

The reality is that the Social Security trust fund does not have the funds to pay all the benefits promised to younger workers.  One of the better estimates we have seen shows that the trust fund will be depleted in about 25 years.  The fund cannot handle the increasing ratio of retirees to active workers (who still contribute to the fund).

There is some good news however – if nothing changes, and the fund runs out – retirees can still expect to receive about 77% of their retirement benefits.

Changes are More Common than You Think

Congress has actually made several changes to benefits and taxes since the system was established.  Here are a few of the most recent:

  • 2000 – Eliminated retirement earnings test – so you could receive full benefits even if still working past retirement.
  • 1983 – Increased full retirement age to 67 (to those born after 1959); added partial taxation of benefits.
  • 1977 – Increased payroll taxes to the current 7.65%; changed cost of living adjustment.

Source: kitces.com

Possible Solutions

The funding shortfall can be addressed by increasing taxes, reducing benefits, or some combination of these.  For example, either a 2.2% payroll tax increase or a 20% cut in benefits would make up for the shortfall in the trust fund.

So while some concern is justified, future cuts to benefits may not be as dire as you might expect.

posted in BlogPersonal Finance

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Disclaimer

Posts are general in nature and do not constitute the rendering of legal, investment, accounting or other professional advice.