The state of Social Security

By Kevin Theissen

The Social Security trustees have issued their 2022 report to Congress, officially called “The 2022 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds.” It is also available to the public and presents the current and projected financial status of the trust funds.

The report is to demonstrate the financial condition of the Social Security system over the next 75 years. If the system is in balance and able to pay promised benefits over the entire projected time period, then no action is required. But if the system is projected to have shortages, the trustees call upon Congress to take action by raising revenues, cutting benefits or a combination of the two to bring the system into balance. The current report calls for raising the payroll tax rate to 15.64%, from 12.4%. Or cutting benefits by approximately 20% for all beneficiaries. Under current projections, the combined OASDI Trust Fund will exhaust in 2035 and payroll tax revenues will be able to pay 80% of promised benefits. Congress has pushed the rock on this for some time now and implementing changes sooner rather than later would allow the system to continue providing benefits.

So, whether Congress acts soon or not, what can you do? First, don’t let solvency questions determine when you claim. If you claim early, then you’d be focusing on the part that’s being taken away. Eighty percent of a higher benefit claimed at 70 is more than 80% of a lower benefit claimed at 62. Whether benefits will be cut or not, you should try to maximize the available benefit, so you’ll have more left after the cut.

Try to have belief that Congress will act. There will be several Congressional terms between now and 2035 so there will likely be completely different people in power then. Congress did act to protect Social Security in 1983 so it’s likely that Congress will reform the system before benefit cuts become necessary.

Lessen your dependence on Social Security. If you really think benefits will be cut—or will go away completely then focus work on securing your own retirement resources. Work smarter, earn more, save more, and invest wisely. Social Security was never designed to cover your full income needs in retirement but rather a safety net to protect us in our later years.

Kevin Theissen is the owner and financial advisor of HWC Financial in Ludlow.