If you have been reading the news lately, we have seen lots of electronic ink spilled over entitlement programs, especially Medicaid and its role in health care reform. Meanwhile, the report of the Trustees of the Social Security Fund issued a grim report earlier this month about the viability of the program upon which almost every American relies as an important piece of retirement income.
The short-term news is good. The Trustees see surpluses in the accounts (income exceeding benefit payments) for the next five years. But then the account starts to drain as benefit payments will exceed collections. The speed of the losses is such that by 2034 the current assets of $2.85 trillion will be exhausted unless revenue is increased.
There are two factors at work here. When the program began in 1935 a retiree who reached the age of 65 was expected to collect for 12 years. That same retiree today is expected to collect for 20 years. This was to some degree foreseeable. More troubling are the workforce statistics. In 1950 16 workers were “paying in” for each person collecting a benefit. Today, the ratio is 3.3:1 and headed toward 2:1 by the 2034 day of reckoning. 2034 sounds like a long way off but ask yourself how old you will be in 2034 and recognize as well that they can’t just let the system run to “zero” and announce to the folks now paying in: “Sorry, game over.”
As real wages are stagnant and the labor force is relatively static, the ability to balance the account with tax increases is limited. What can be done to help is to keep increasing the maximum contribution profile. That was done in 2017 as the max out for contributions rose from $117,000 to $127,000.
But, just as we have written previously about how we may someday see cuts in defined benefit retirement plans (the ones that pay monthly at retirement), future retirees may be prudent to ask if benefits will be cut or means tested, as well. These are not pleasant subjects to consider when planning retirement and especially planning a retirement after dividing the pie in divorce. Yet, they do need to be considered.