• Jeran Van Alfen, CFP®

Will Social Security Be There For Me?

Updated: Oct 10

Many of us know that the Social Security program has been under pressure for years. In 2020, The Covid Pandemic created a further negative impact on the program’s financial outlook. Let’s take a look at what may be in store for our future retirement benefits.


What are the issues?


We should all be familiar with the taxes that we pay out of our paycheck to fund the Social Security program. These taxes are revenue that the government uses to pay Social Security benefits. When the program started in 1935, there were many more workers than there were retirees. There was also a much shorter life expectancy, so the length of time one would spend in retirement collecting benefits was shorter. Under these conditions, the program was able to thrive and build up a surplus in the Old-Age and Survivors Insurance trust fund. At the end of 2020, this surplus stood at $2.9 trillion[1].


However, trends have shifted. The number of retirees continues to grow at a rate faster than our workforce. In addition, people are spending much more time in retirement than what was intended in 1935. At the current rate, the system will begin to pay out more than what it collects in taxes. To make up the difference, the government would have to tap into the surplus and the trust fund would be depleted over time. This is what people mean when they say the Social Security will run out of money. Current projections expect the fund to be depleted in 2033 if no changes are made.


Covid took its toll


In August, it was reported that the pandemic had a negative impact on the outlook for the trust fund [2]. Layoffs, eliminated positions, and early retirements shrank the labor force in 2020 and changed some of the calculations for the future. The projection of money lasting to 2033 is one year less than what was previously expected.


Will it really run out of money?


The idea of Social Security going broke is misleading. Just like any household or business, expenses are paid for with revenue. The cash flow of Social Security will still work as long as the government is taxing our paychecks. However, the money coming in will only cover a portion of what needs to be paid out. As it stands, if the surplus runs out, the program would only be able to pay 78% of scheduled benefits with current revenue.


What to expect


This problem isn’t new. Social Security faced similar issues in the 1970s. Economic challenges created risks and the program began running a deficit in 1975. Even back then, the future issue of a mass retirement of baby-boomers was on the government’s mind.

In 1983, congress took action. Several changes were enacted that still exist today including raising the retirement age, imposing a tax on social security benefits, and increasing the payroll tax to pay for the program.

Chances are the government will step in again and make changes before the fund is depleted.

What could change?

  • Payroll taxes could go higher: The current tax is 6.2% paid by employees and 6.2% paid by employers. Those lucky self-employed “bosses” are responsible to pay both for a total of 12.4%.

  • The wage base could be increased: Currently Social Security taxes are only paid on wages under $142,800. This means that payroll taxes are regressive where when income is lower a higher percentage is paid in taxes. Congress could always increase the wage base limit.

  • The full retirement age could be moved back: In 1983, the full retirement age was changed from 1965 to the progressive age we have now with most people’s FRA at age 67. Many think that the FRA will be moved back to age 70 at some point. With people living longer this would be a natural response to the problem.

Make a plan

The future of Social Security is one of those things that is out of our control. I always recommend that when it comes to financial planning, we have to focus energy on the things we can control. Here are some things to keep in mind:

If you have a long time before retirement:


  1. Take responsibility and start saving for your future! Chances are most of your retirement income will be funded by your savings and not government entitlements. It is important to start building a nest egg now.

  2. Look for opportunities to create passive income streams. Side hustles, real estate, dividend-paying stocks, etc. Building future income should be a priority.

  3. Mini-retirements: The work/retire timeline has changed. Waiting for your golden years to take the big trip or step away from your career trajectory is not the only acceptable path anymore. With technology, lower travel costs, and greater interconnectivity, many are choosing a longer work life with some breaks along the way.

The important thing is to make a plan. When you plan for income at Social Security ages, we can run projections with lower or no benefits to understand what those scenarios would look like and plan how you can take ownership of your income. It is important to think about the future and ways that you can be responsible and make conscious choices.

If you are in or near retirement:


  1. Chances are there will not be drastic changes from the Social Security statements that you have checked recently. The program is in place to take care of people at your stage in life.

  2. Make smart decisions on when you take your benefits. Your earnings, life expectancy, health, and balance sheet all make a difference on your timing of benefits. It is important to know your options and have a plan. We can help you look at several scenarios and make the right choice for your personal goals.

  3. Make a budget and review your plan at least annually. Consider how your income, retirement withdrawals, and Social Security benefits can be staggered to meet your needs.

For more information and help, make sure to check out our ebook: How to Retire in the 2020s

Centered Financial, LLC is a registered investment adviser offering advisory services in the State of California, Utah, Texas and in other jurisdictions where exempted. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no assurance that the techniques, strategies, or investments discussed are suitable for all investors or will yield positive outcomes. To determine which strategies or investment(s) may be appropriate for you, consult your financial adviser prior to investing. Any discussion of strategies related to tax or legal planning is general and is not intended as tax or legal advice. Please consult appropriate tax and legal professionals for recommendations pertaining to your specific situation.

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