I’m Still Counting on Social Security – How About You?
I don’t believe it. And even though I am a strong proponent of being responsible for your own financial future, I am counting on Social Security being there for baby boomers and beyond.
This is Why Social Security is Here to Stay
Baby Boomers won’t let Social Security disappear
If Congress were to let Social Security unravel, baby boomers would vote them out and replace them with politicians friendly to the AARP. Older folks vote in huge numbers. The AARP is a strong advocate of Social Security. At 35 million members, the AARP is ten times the size of the National Rifle Association. Its $800 million budget is five times that of the U.S. Chamber of Commerce, which is our country’s largest business lobbying group. As we boomers continue to age, the membership and voting clout of the AARP will only increase. The AARP almost by itself stomped out the Republicans’ plan to privatize part of Social Security.
Social Security will need to be solid and secure until the last of the boomers moves through the system.
Younger Generations Will Need Social Security
Even if you think that only boomers are concerned about Social Security, think again. Post-baby boomers in the the younger generations will also need Social Security.
Using me an example, if I wait until age 70 to claim Social Security retirement benefits, my wife and I will be entitled to receive a combined retirement benefit (in today’s dollars, using current calculations) of $4600 monthly. Now instead assume that Social Security is not there and I needed to replace that $4600 per month with investment income. Using an annual retirement withdrawal rate of 4%, I would need a retirement fund of $1,380,000 just to replace those Social Security retirement benefits.
I doubt that many of you are confident that you will have a fund in excess of $1 million (in today’s dollars) just to replace the Social Security benefits that you assume won’t be around. Even if you had that confidence last year, how about after the 40% market drop that we experienced in 2008. There has been a significant and likely permanent shift in investment confidence levels at all generational levels. The long anticipated market returns of 10%-12% annually are gone, perhaps for our collective lifetimes. We actually need to do better than that to recover from the recent market declines. Because of that, all but the wealthiest working adults of all ages must look forward to the continued existence of a Social Security retirement system. Having a multimillion dollar retirement portfolio is nice to think about and plan for, but not many get there.
Social Security Fixes are Available
Even if you understand that our Social Security system is a good thing after all, you may still doubt whether it can be fiscally sustained even with the good intentions of all working adults. True, the Social Security system needs repairs but many experts believe that the actuarial and funding crisis has been overstated and over-hyped. (Of course, Medicare is a separate and more severe problem.) The misinformation about the stability of the Social Security Trust Fund is characterized by the Center for Economic and Policy Research as a “solution in search of a problem. ”
There are different options available to improve the actuarial health of the Social Security system. They include delaying the retirement age or increasing the cap on Social Security earnings. Even immigration reform could inject millions of younger workers into the system, boosting contributions.
What Does This Mean to Baby Boomers?
I suggest that you not automatically discount or exclude Social Security as part of your retirement plan. Otherwise, you may end up taking excessive risk as you attempt to replace Social Security income with retirement investments. That could blow up in your face.
I will need more than Social Security but I expect it to be there. I am frequently checking the online benefit estimator and paying close attention to my annual Social Security Statement. How about you?
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