Yellowstone Financial, Inc.

Social Security Worthless? Think Again

You probably revere Social Security if you receive a monthly check. You may wish it were higher and was increasing the last couple of years, but you are happy for the benefit. It may be your one regular “paycheck” now that you’ve retired.

If you still contribute to Social Security, you may see it in a different light. If you are in your sixties or late fifties, you may believe that your benefits will be there. If you are younger than that, you may view Social Security as a mirage. While that oasis of a steady retirement income may be tantalizing, you think it is likely to dissipate by the time you arrive.

If you are in your forties or younger, you may doubt the very future existence of the program. I recognize that wan smile when preparing retirement projections for these clients. You just don’t believe it will be around.

The truth is that Social Security is in much better shape than you may realize.

On track for the next 27 years. According to the Congressional Budget Office, the Social Security trust fund will last until 2038 under current payroll taxation and benefits. Assuming these factors remain the same, the program would have to reduce benefits by 19 percent at that time. This is a challenge, but hardly represents a catastrophic cut in benefits.

Changes are coming. This dire prediction assumes that the rules in place today will remain the same. There are several changes that could be made to improve the program’s longevity. Currently the first $106,800 of pay is taxed in a year. This taxable amount could increase beyond regular inflation adjustments. Benefits are increased every year by the obscure CPI-W inflation factor, which could be modified.

Full retirement age is 67 for those born in 1960 or after. This age could be adjusted to match longer life expectancies. The formula used to inflate your past wages to determine your benefit is aggressive and could be modified. Any one of those changes could result in making the program sustainable for many years beyond 2038.

Social Security helps you now. Even if retirement benefits are cut or if you pay more into the system, Social Security helps many of you today. If you have children under 16 years old, if you die your spouse can receive a monthly benefit, as can your children. Depending on your income, your spouse and children could receive up to $4,000 a month adjusted for inflation until your children are grown.

Social Security also has a disability benefit that protects your income stream if you are no longer able to work. Unfortunately, it is notoriously hard to qualify for it, the payments are modest, and most professionals have access to better long-term disability policies through work.

So the next time you sneer at Social Security, think about how it could help your family if something were to happen to you, know that future benefits are largely funded, but expect changes in the program to come soon that could reduce its value to you.

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The Laid Back Portfolio took it in the shorts in the third quarter, which had the worst performance in the major equity indices since the Great Recession in 2009. Remember the Laid Back Portfolio keeps it simple with 60 percent in the S&P 500 and 40 percent in a widely followed bond index, and includes a one percent annual adviser and investment fee.

Laid Back lost 7.2 percent for the quarter, leaving the portfolio down 3.3 percent for the year. After next quarter we’ll rebalance, which is absolutely vital to doing better than the average investor.