About 6 months ago, the Social Security Administration started calling my office asking to arrange a meeting with my IRAAA colleagues and I. For months I had shrugged it off because of the fact that many of my readers, customers, and colleagues plan their finances as if SSA will fail. Taking control of your IRA/401k funds is all about putting your retirement in your own hands. So when I received the message from SSA, I figured it must be some kind of mistake.
After numerous messages, I spoke with them, and a meeting was set here in Denver. Associate Commissioner of the Office of External Affairs was flown in from Washington, D.C. I didn’t exactly know what to expect.
Their Concerns
Here I provide a brief summary of their objective in this meeting:
- Their budget is being cut
- They now have less than 60,000 employees for the first time since 1974 (Maybe we should have been cutting their budget back in 1975).
- Lines are already often excruciatingly long in some local SSA offices.
- Baby boomers retiring en masse in the coming years. If nothing is done the SSA program will become incredibly difficult to deal with.
- They aim to counteract this by launching a new tool allowing Americans who aren’t yet retired to estimate their future SSA benefits online.
- Additionally, they are launching another tool to enable retirees to start receiving their SSA benefits by using an online process.
- In a nutshell, they are eliminating the need for Americans to visit an SSA office for certain requests.
What they want me to do (in my capacity as Chairman of IRA Association of America) is to help spread the word to individuals, CPAs, and financial planners about their new online tools.
My Concerns
I explained to the Associate Commissioner that many of my clients and colleagues have certain beliefs in common. They feel they cannot rely on the stock market to provide predictable investment returns nor can they rely on a retirement welfare program of a financially failing government to provide for their financial security.
Concerns specifically about the ability of the SSA program to deliver on its promises are based on the following:
- SSA has historically referred to its “trust fund”. In recent years, it was exposed that there is no segregated account with any cash or real assets in it for use in paying SSA benefits.
- The SSA trust fund is basically an account with government “IOUs” in it. The trust fund “balance” is actually an accounting of the amount of money the government has borrowed from the Social Security program.
- Trustees reported that SSA’s payouts will exceed its income starting in 2017.
I also hear and share concerns about inflation. The “official” BLS figures have been understating real inflation ever since Greenspan jerry-rigged the calculation methology in the early 1990s. So over time social security benefit payouts will be increased annually at a rate much lower than the real increase in cost of living.
The Associate Commissioner did refer to these concerns as “legitimate”; she said she couldn’t personally offer a response because “economics is not her strong point”, but she offered to have SSA staff create some articles on this topic for my clients and colleagues to read in an effort to restore our confidence in the SSA system. I’ll post an update when these articles materialize.
The problem as seen through reality goggles
The root of the financial problem of SSA is that the funds received are handed over to the government for general spending… and lo and behold, they get spent in their entirety year after year. If there were an actual place for our Social Security payments to be protected from the government, then the following factors of the SSA program would never have had to be messed with:
- The payroll taxes that fund SSA (they started out at 2%, now they’re at 12.4%)
- The retirement age (started out at 65, now it’s 67)
- The taxation of our benefits (it started out that 0% of benefits could be taxed, now it’s as high as 85%)
What’s happening is that we all pay into this system, and our money goes to government spending instead of our retirement.
My prediction
Outcome A
Items # 1, 2, & 3 above will be messed with to effectively increase taxes and decrease benefits in the SSA program. Problem solved.
Outcome B
The Fed will kick its metaphorical printing presses (which are already running constantly) into high gear resulting in hyperinflation. SSA will pay out its benefits (without messing with # 1, 2, & 3 above) in increasingly worthless dollars. Benefits as promised in terms of dollars will be paid… but in terms of actual spendable wealth, benefits will decline rapidly and continually. Problem solved.
…or of course a combination of both A and B.
Spreading the message
So, if you are wondering how much you could expect to receive from SSA in your retirement years, there is now a calculator on www.ssa.gov. If you would like to retire and begin your SSA benefits, the online process will be officially launched in October on www.ssa.gov.
But, under no circumstances should you depend on SSA for retirement. Even SSA itself admits this and encourages a concept of a “3 legged retirement stool” made up of SSA benefits, defined benefit pensions and/or defined contribution retirement accounts, and personal savings. I strongly encourage your expectations to be focused on the two legs which you control. Think of your social security benefits as if they are that $10 bill you sometimes find to your surprise in your pants pocket as you are doing your laundry.
