As a baby boomer who has been involved in personal finance for 30 years I try to follow what's going on with Social Security. And I have to say that I'm not that happy with what I'm seeing. Just finished reading a report from Reuters that set off the butterflies in my stomach. Here's the first few paragraphs:
CHICAGO (Reuters) - The trustees of Social Security will release their annual report on the program's health sometime in the next few weeks, and the news will not be good.
The 2012 briefing is expected to show further deterioration in Social Security's financial outlook, due to the higher-than-expected 2.9 percent cost-of-living adjustment awarded this year and a decline in the taxable wage base available to the program. The report is the official gauge of the program's health - signed by three Cabinet members, the Social Security commissioner and two independent Congressional appointees.
Social Security is not in imminent danger of running out of money, but it faces a financial crunch a bit further out - around 2035. That is when Social Security's Trust Fund is projected to be exhausted due to the drawdown of benefits by the baby boom generation. At that point, the program would have sufficient tax revenue to pay only about 76 percent of promised benefits.
The article does a brief Q&A with Steve Goss, the chief actuary of the Social Security Admin. In it Mr. Goss tries to encourage people to wait until age 70 to begin taking benefits because they'll get more each month. And, his analysis is correct as far as it goes. But there are two things that weren't mentioned in the Q&A.
First, you really should take a look at how long you're likely to collect those benefits. Most of us boomers have already buried one or two friends. We hope to be among those who live into our 90's. But, based on our family history and our own current health that might not be too likely. If none of your parents or grandparents lived past 65, you might want to start taking Social Security as soon as you're eligible. At least have a financial planner (or a financial website) put together a projection of how long you'd need to live to make up for the years that you delayed getting Social Security.
Secondly, what happens around 2035 (just 23 years from now)?? Yes, we have a promise of what benefits will be paid. And, yes, there are cost of living adjustments. But what happens if the money simply isn't there? In a few short years (hopefully prior to 2035) we're going to be facing a decision. Will we ask seniors to take less in Social Security or will we take more from younger workers (and taxpayers)?
It's not a stretch to think that one of the first suggestions will be that people who have accumulated some savings will be asked to take reduced SS benefits. That's particularly relevant for people who have lived frugally so they could save for retirement.
And, I'm old enough to recognize that sometimes people make promises that they're unable to keep. Being frugal I'm naturally cautious. In effect Social Security has promised to raise taxes on our children and grandchildren. I question whether our kids can meet those promises and still support their own families. So I can't help but wonder how SS will keep the promises that have been made.
Bottom line? I'm not suggesting that everyone take their Social Security benefits as soon as possible. Just saying that you should look at some numbers before you make a decision. Consider your life expectancy and the ability of Social Security to keep it's promises in the future. Hopefully the money will be there and you'll collect benefits for 30 or more years. But, you'd be less than prudent if you don't consider other alternatives
Keep on Stretching those Retirement Dollars!