If you follow the news related to retirement for any length of time these days, you will encounter some article on the woes of Social Security, either presently or imminently. Recently, Gary King and Samir Soneji, professors at Harvard and Dartmouth respectively, wrote an article for the New York Times in which they claimed that the situation with Social Security is actually worse than everyone thinks, and that urgent action is needed.
What is the problem? According to the article, the calculations used to determine the fiscal solvency of Social Security are incorrect, using assumptions that are outdated and figures that are obsolete. In essence, the difficulty is increased longevity. Plummeting smoking rates and vastly improved treatment of (among other things) cardiovascular disease mean that people are living considerably longer, an increase that even our national diabetes and obesity epidemics are not denting. Frankly put, the longer people live in retirement, the faster social security’s trust fund will drain. The authors, in fact, estimate it will be empty within two decades.
It is not the place of NewRetirement to speak to whether or not that estimate is likely to pan out, but instead to discuss what this means for you as a prospective retiree. In the short term, this article and others like it raise the visibility of the problem that Social Security faces, potentially increasing the chances that changes will be made to how the program works. These changes could include raising the retirement age (the authors suggest hiking it as high as 69), increasing social security taxes for those with incomes above a certain level, reducing or eliminating yearly COLA adjustments for current retirees, or, of course, simply reducing the payouts that future generations of social security recipients will receive. Obviously, any of the above solutions will impact, perhaps drastically, your retirement plan.
So given that nobody knows what, if any, solution will be implemented, what can you do to ensure that your retirement is secure? One technique is to model out possibilities using an advanced retirement calculator. A calculator can help you consider contingencies, ensuring that you have a plan if your retirement age is shifted upwards by two years, or your payouts wind up being less than expected. This preparation work will stand you in good stead if new rules change the math on optimizing social security. But ultimately, the solution may have to fall outside of Social Security. Middle Class retirees already cannot count on Social Security maintaining them at their current standard of living, and it may well be that the retirees of the future will simply have to reduce further the share of their retirement that is covered by Social Security.
As such, having a retirement plan that uses Social Security, but does not depend primarily upon it, is increasingly becoming a must-have for those looking to their golden years.