Rethinking Retirement Income

A frequently asked question in our office is related to the subject of Social Security income and whether it will continue in its current form, be changed or be there at all in the future. Since Social Security checks are many people’s primary source of retirement income, what people are really asking is how their primary source of retirement income may be affected and their ability to circumvent a problem should it arise.

In short, no one truly knows what changes will ultimately happen with Social Security. Those decisions are left to our politicians and we see how well decision-making and compromise works in that world don’t we?

Everyone reading this is either retired or aspiring to be at some point in the future, so let’s unpack this a little and see if we can provide some help in how to think about your retirement income needs. Please understand as you read, I am not associated with or endorsed by the Social Security Administration or any other government agency.

The OASDI (Old-Age, Survivors, and Disability Insurance) Trust Fund (also known as the Social Security trust fund) has been in trouble for quite some time in terms of long-range solvency. The Social Security Administration’s website is not shy about touting this fact.

The last seven Trustee Reports have indicated that without some type of change by lawmakers, Trust Fund reserves will be depleted between 2033 and 2034, under the economic and demographic assumptions they use. In summary, in under 15 years…maybe sooner…scheduled Social Security tax revenues will only be sufficient to pay about three-fourths of the scheduled benefits after depletion of the Trust.

In my opinion, Washington got us into this mess through a whole host of things it has either caused, allowed or refused to address. Now they want to lay the problem at the feet of those who’ve already paid into it the system or are currently paying in…those who have earned it and depend on it the most, right when they need it the most. Not fair, not right, but it’s where we are.

In fairness, lawmakers have been proposing ideas through legislation for many years. Nine proposed pieces of legislation were filed in 2017, seven in 2018 and 2019 has seen filings as well. The problem is that few legislators have the political will to follow through with substantial changes because of the fallout they fear may ensue at the ballot box.

The purpose of this article, however, is not to discuss politics and how Social Security may change. Anybody’s guess is good. What we do know is what will happen if nothing changes and that’s not good either. I happen to believe that certain segments of the population (such as current recipients) will be “grandfathered” from future changes, but we will see.

Social Security was originally never intended to be the sole, primary source of retirement income. Instead, it was meant to be a backstop or helping hand for retirees. As we already pointed out, for most people, it is their only retirement income.

Let’s look at the implications for two groups: Those who have not yet retired and those who have.

Aspiring Retirees

As you are approaching retirement, it is good to know not only how your current financial situation looks in relation to your retirement goals but also what options you may or may not have, should life throw you a curveball. When we design financial planning strategies for our clients, we look at many different areas, with income being just one important piece.

For instance, while we plan around Social Security in its current form, we can also forecast a “what-if” analysis showing how your income would be affected. What would you do if this or that happened? Would you have to reduce expenses? Sell your home? Would you have enough retirement assets to make the retirement you envisioned work?

Speaking of work, would you have to work longer or indefinitely to some degree because of a change with your Social Security estimates? It’s always better to be prepared and informed in decision-making.

Already Retired

For our readers who are already retired and likely receiving or soon to be receiving Social Security benefits, many of the principals that I’ve just mentioned for aspiring retirees apply to you as well. As mentioned, I believe if changes are made to the OASDI system those already receiving benefits are less likely to be affected. However, that’s not guaranteed! Therefore, prudence would say be ready, know your options and have a handle on what changes you could make if your benefits were suddenly cut. How would it affect you and your retirement?

Social Security is simply one aspect, but a very important aspect, of an overall income strategy for retirement. There are five critical pieces to any strategic retirement plan. Do you know what they are and more importantly, do you have a written plan? Most people don’t.

Every day we help readers just like you find clear direction for their retirement. We’d love to help answer the questions you have about navigating your unique situation. Give us a call or come see us, I look forward to meeting you.

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