New projections show the Social Security trust fund will run out of money by the year 2033. Financial expert, Marshall Clay from The Welch Group says that money is safe, but that’s just in the short term.
“There’s been a lot of press about the Social Security trust fund and how it’s depleting rather rapidly,’ Clay said. “I get this question a lot, ‘Is my Social Security safe?’ And I think the bottom line answer is yes, but it depends on some things.”
The wealth management expert explains there are really two underlying funds within the Social Security Trust Fund.
The first one is the Old Age and Survivors Insurance Fund. That’s the more traditional Social Security fund, and then there’s the disability insurance aspect of that. The latter means if somebody gets injured, they can receive Social Security disability.
As for when they’re expected to run dry, Clay says based on projections, the Old-Age and Survivors Insurance Fund is anticipated to run out in 2033. “So we don’t have a long time, assuming that their assumptions are correct,” Clay said.
For the disability fund, projections are a little bit further out, around 2034. However, the Certified Financial Planner gives a more grim forecast as to when the funds will be depleted because of one main factor. “My opinion is this fund is likely going to run out before then. There’s a lot of assumptions around recessions. This has a no recession assumption built in. So if we see a large amount of unemployment, it’s going to deplete this fund faster,” since payroll tax when people are employed is what supplements these funds. If there are more unemployed people out there, the financial expert worries this will accelerate the drainage of the accounts.
As for what to expect when this fund runs out, Clay explains there will be several changes to dispersing the money. “So if Congress takes no action which is probably unlikely, but if they take no action, (expect a) 20% cut in benefits for everyone. And so that’s immediate,” Clay said. “So you can imagine the political turmoil that’s going to create. So there’s going to be a lot of pressure on them to do something.”
But that’s not all. Clay says in addition to the 20% cut, beneficiaries can expect a delay in benefits, and workers can expect an increase in payroll taxes.
As for planning ahead, the wealth management expert has a word of warning for the younger crowd. “I think you really need separate Social Security out and not really rely on it all,” Clay said. “I know our firm, if you’re 45 years of age and below, we’re completely taking that out of our models. Now, that’s very conservative, but we do not want our clients to rely on this Social Security benefit.”
The key takeaway, according to Clay, is to have a plan to counteract the negative effects of inflation, since he thinks it will be with us for a while. “We’re getting a lot of inflation data currently that suggest inflation is back on the rise. I think that’s going to be a bigger problem. I do not think we’re out of the woods on that, and I think that’s just going to be a future problem that people are going to tackle.”
The financial expert says it’s imperative to have other assets outside of Social Security, and one should not look for Social Security to be the sole retirement plan.
