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Social (In)Security

Ugh, is that even going to exist when I retire? The skepticism makes sense when you see headlines like, “Social Security on track to go BROKE!!” But, as is true in most financial news, it pays to look beyond the headlines.

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December 12, 2023

5 min read

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      Yes, there’s a gap in funding heading our way.


      Social Security is mostly a “pay as you go” program. Today’s benefits are funded primarily by the payroll taxes collected from today’s workers. 

      Over time, however, Social Security collected more money than it paid out. That surplus was invested in interest-bearing Treasury securities, ultimately reaching a total of $2.9 trillion in trust fund reserves. In 2021, Social Security began drawing on those reserves to help pay benefits. 

      It’s those trust fund reserves that will be depleted in the next 10 years, due mostly to an aging population, lower birth rates, inflation, and longer life spans. 

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      It’s fixable. 

      If Congress were to do absolutely nothing in the next decade to address the issue, the trust funds would be depleted sometime between 2032 - 2035. In that scenario, benefits would be reduced and/or the retirement age would be raised. Current payroll taxes would continue to meet about 70-80% of the current funding requirements. 

      But it’s nearly guaranteed that some action will be taken by Congress to shore up the social security program in the next several years. That action could look like tax increases, benefit reductions, changing eligibility rules, or some combo. However the chips fall, the political process of getting there will be dramatic.  

      We’ve been here before. 

      Landmark Social Security legislation was passed in 1983, which gradually raised the retirement age from 65 to 67 and made a portion of the payouts taxable. These moves stabilized the program after a period of slow economic growth and high inflation.  

      The Playbook take

      We expect some form of social security to exist for many decades to come, but we prefer acting like it won’t. 

      Here’s what we mean: Social Security was never intended to be a primary source of income. It was meant to provide a buffer, a safety net, to protect against poverty in old age. FDR called it a “safeguard against the hazards and vicissitudes of life." (Funnily enough, this is also the reason we watch The Great British Bake Off.) 

      Changes to the program will play out over the course of our lives, and we’ll be focusing on what we can control in the meantime: building up wealth so we can reach financial security on our own timeline. 

      If you don’t know where to begin, we created the perfect way to get started with a free trial of Playbook

      To financial freedom and beyond.

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