What You Think You Know About Social Security May Not Be So


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By Steve Garfink, International Living,

When I ask people what they think the prospects are for them getting their Social Security benefits, those over 50 will say something like, “I plan to claim it as soon as possible and get my share while it lasts.” Younger people commonly say, “I know it won’t be there for me.”

According to the most recent annual report from the Social Security Trustees, if nothing is done to modify some of the rules and regulations, then in about 17 years the program would only be able to pay about 75% to 80% of the scheduled benefits.

This isn’t news to anyone who knows anything about the program. Moreover, that 17-year horizon moves in and out each year with the performance of the economy. It was a little closer in the years right after the great recession when unemployment was high and fewer workers in the work force meant lower collections in payroll taxes. With the improvement in employment in recent years the looming shortfall has begun to recede a bit.

Still, everyone agrees that something will eventually have to be done. The question is, are the needed changes manageable? The answer: Yes. Consider this bit of history…

Back in 1983 Social Security was facing a somewhat comparable financing crisis—only it was going to experience a shortfall in less than a year (not in 17 years as we are facing today). Republican President Ronald Reagan and Democratic Speaker Tip O’Neill worked out a deal to fix the program just in time. Primarily, they agreed to raise the payroll tax rate a bit less than one percentage point (a tax increase Republicans disliked) and to raise the full retirement age from 65 to 67 gradually over the following 40 years (a benefit cut Democrats disliked). Once this legislation was passed (with strong majorities in each party), the program was brought back into balance for the foreseeable future.

Think about that: Back in 1983 they made “tweaks” to the program that made it solvent all the way out to around 2034, 51 years into the future. The same can—and will—be done to fix the program today.

So why hasn’t it been fixed yet? While the solution for Social Security is fairly straightforward, it’s going to require a compromise: a modest tax increase that Republicans will fight and a similarly modest “cut” in benefits that Democrats will fight just as much. When that will come to pass is anyone’s guess—and remember: when they fixed it in 1983, the program was running short of funds in six months, not 17 years, as is the case today. Still, whenever all the partisan hysteria is done and a vote is taken and the program is fixed for another 50-plus years, everyone will wonder what all the fuss was about.

There are times and circumstances where it can make good financial sense to claim our benefits early. However, claiming early because you’re worried about the financial stability of the program is not one of them. When it comes to our Social Security, the wise bet is to assume that the program will be there for us and plan a smart claiming strategy accordingly.

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