Our approach at LWA Medical is to run multiple models for many situations, especially if the client is under the age of 50. We often run projections showing reductions in benefit levels or an increase in the full retirement age or both.
Having said that, it is important to consider what the recent headlines actually mean and what the impact could be on Social Security Recipients. As you may know, this week it was reported that the Social Security Trust Fund would run out of money in 2034 (combined OASDI funds deplete in 2035).
But what does this really mean to retirees and to the future of the benefit program? What actually could happen if Congress does nothing and the trust fund becomes depleted in 2035?
Most people believe that the benefits being paid would cease. That, however, is not the case based on our research.
What actually could happen is that the benefits being paid would be reduced by 20%. The projected current level of social security tax-revenue would be enough to sustainably provide current and future retirees 80% of the benefits they are due in today’s system through at least 2093. That is almost 75 years.
And at that point, in 2093? To remain sustainable well into the 22nd century, 80% of benefits being received by retirees would need to drop an additional 5% to 75% of their projected benefit in the current environment.
Clearly, it is important to plan and understand what a reduction in benefits might mean to your situation. However, the alarmist doomsday scenario is in our opinion not based in fact. While there may well be an increase in the full retirement age to 71 or 72 or the benefits may be less than projected, the likelihood of a full collapse of the system is low in our view.
In conclusion, it remains important to model the impact of reductions in Social Security in your retirement planning to understand a worst-case scenario. However, the data tells us that the likelihood of a doomsday scenario in 2035 is low. It makes for compelling headlines but is short on substance.
Data Source: https://www.ssa.gov/policy/trust-funds-summary.html
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