Mitch's Mailbox

May 15th, 2024

Is Social Security About To Run Out Of Money?

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Mary and Will A. from Oxford, MS ask: Hello Mitch, we hope you’re enjoying a nice Spring. My husband and I saw an article recently that said the Social Security program could be running out of money soon. That has us very worried as our goal is to retire next year. Is there truth to this article and if so, what does that mean for our benefit payments in retirement? Thank you.

Mitch’s Response:

Thanks for writing, Mary and Will, and I hope you are having a colorful spring season as well.
In short, I do not think you need to worry about all about whether you will receive your full Social Security Retirement Benefits.

The articles that ran last week highlighted the prospect of Social Security trust funds running out in the next decade.1 At current levels of payouts vs. revenues, this is true. But the important thing to understand here is that Social Security is a pay-as-you-go-system—it is not purely funded by the trust fund in question. Tax revenue is the primary source of financing for benefits, and as long as the U.S. economy continues to grow and businesses and individuals continue to pay taxes—two outcomes I would not bet against—then the Social Security program will pay benefits.

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Numerous financial myths, like social security running out, circulate widely, often leading to detrimental consequences.

I recommend familiarizing yourself with common financial myths and pitfalls that can derail your financial journey.

To keep you on track, I’m offering our guide, Debunking Common Financial Myths2, which addresses myths, like:

• When you retire, you should get out of stocks completely
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The Social Security trust fund is tapped when the program’s benefits (which include disability in addition to Social Security retirement benefits) outweigh its income from payroll taxes and other sources. Since 2021, Social Security benefits have outweighed tax revenue for the program, which has put the trust fund on a depletion path. In the 1980s, ‘90s, and early 2000s, Social Security ran a ‘surplus’ that accumulated in the trust fund, which is invested in U.S. Treasury bonds. But in 2023, the balance of Social Security trust funds fell by -$41 billion.

Looking ahead, the solutions for keeping the Social Security program afloat are pretty straightforward. Congress could pass a law that allows the U.S. Treasury to pull funds from other revenues and sources to finance Social Security, which would enable the program to continue paying benefits as normal without raising taxes. Congress could also raise payroll taxes to generate additional revenue for the program.

But the idea that Congress would make structural changes to the Social Security program that lowered benefits would be so unpopular politically that it seems highly unlikely that any political party would rally behind the idea. I really don’t see any possibility that this would be the next step.

One final thought to put forward on this topic is that the possibility of Social Security trust funds running out means retirees should claim benefits early in retirement, to mitigate the risk of seeing benefits get cut. Generally speaking, I disagree—it often makes sense to wait as long as possible to claim Social Security benefits, to maximize the dollar amount of lifetime benefits. For investors with adequate retirement savings, I still think this is a good idea.

If you’re looking for other investing tools to help shape your retirement portfolio, I’m offering our guide, Debunking Common Financial Myths3 which helps familiarize long-term investors with common myths and pitfalls that can derail your journey to success.

This guide covers a few myths, such as:

• Retirees should get out of stocks completely
• It’s essential to watch the daily movements in the stock market
• Financial advisors always have your best interests in mind
And more…

If you have $500,000 or more to invest, I recommend downloading your free guide today!

Disclosure

1 MSN. 2024. https://www.msn.com/en-us/money/markets/social-security-funds-are-running-dry-don-t-panic/ar-BB1lXc7D

2 ZIM may amend or rescind the “The Zacks Bear Market Survival Kit.” guide for any reason and at ZIM’s discretion.

3 ZIM may amend or rescind the “Debunking Common Financial Myths” guide for any reason and at ZIM’s discretion.


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