The current economic downturn is affecting many areas within the federal government, and Social Security is no exception. The latest report of the Social Security Board of Trustees, issued in May 2009, contained news that may affect beneficiaries in the years ahead.
Between 2012 and 2030, the retirement of a significant number of baby boomers is expected to cause the number of Social Security beneficiaries to rise much faster compared with the number of workers contributing payroll taxes to fund benefits. Tax revenues are expected to fall below program costs in 2016, one year sooner than anticipated in last year’s report. Trust funds are expected to be depleted by 2037, four years sooner than last year’s estimate. When making predictions about the future, Social Security assumed a lower level of economic activity to reflect the economic downturn.
Planning for the Future
Although nothing is certain, there may be changes afoot in how the federal government funds Social Security and how workers plan for a secure retirement. The trustees report suggested that the expected shortfall could be addressed by increasing the payroll tax rate, reducing future benefits, transferring revenue from other government coffers to fund Social Security, or some combination of these actions.
Don’t Forget to Save
It may be prudent for workers to save as much as they can afford while they are still working in the event that future retirement benefits paid by Social Security differ from those available today. Workers who pay Social Security taxes receive a statement, typically three months in advance of their birthday, with an estimated future benefit that is based on certain assumptions factored in by the Social Security Administration. When reviewing your statement, look at the assumptions, including retirement at various ages, and consider your standard of living if your expected benefit is reduced or if you retired early because of circumstances out of your control.
If a smaller Social Security benefit would potentially cause financial hardship, you may want to try to increase your savings rate. Employer-sponsored retirement plans and IRAs are investment vehicles established specifically for investors to build assets for their later years.
Since there are no guarantees for the future, saving as much as you can prior to retirement may increase your chances of being financially secure regardless of developments in Washington or within the broader economy.