The fundamental question is not how much longer the Social Security and Medicare trust funds are going to be solvent. The question is how much we’re willing to spend to insure that the elderly have affordable access to health care and some financial security.
James Surowiecki in the New Yorker
Since the day I got my Social Security number when I was still in high school, I’ve heard this tiny voice out there somewhere telling me that Social Security will not be around by the time I reach retirement age. I will be one of millions who contribute all of my working life and never see a dime in my old age. That voice became louder and louder through the years as I became more convinced I would be shut out. And I’ve done my share of affirming that prediction, quite certain that I and my peers would come out with the short stick on that deal.
Quite remarkably, that voice has quieted for me. In fact, I may have to eat my words. I have received confirmation that as this book goes to publication, my first check has been approved for delivery.
Will the system endure so that one day you will have that same assurance? I cannot answer that question with certainty. But here is what we do know from the most recent Social Security trustees’ annual report38: The trustees now project that the old age and disability trust funds combined will be unable to pay full benefits in 2033, three years sooner than projected in last year’s report. Come 2033, if Congress does nothing, there will be sufficient assets to pay 75 percent of the benefits. In other words, while the money the country has been collecting in imaginary trust funds will have run out by 2033, the taxes coming in should still be enough to pay $0.75 for every dollar of promised retirement benefits39 beginning in 2033. To make the system work, Congress will have to reduce benefits, increase taxes, or, more likely, do both.
At best, when these kinds of changes go into effect, they could easily turn Social Security from a guaranteed annuity for all into a safety net for the very poor. As it is now, even at best—meaning that you do receive 100 percent of the benefits for which you will be eligible when you reach full retirement age—the benefits will not be enough. The average Social Security benefit for women sixty-five and older in 2012 was about $12,700 per year40—slightly more than $1,000 per month.
Social Security is not an investment program. There is no individual bank account out there with your name on it that contains all of the money you have paid into the system since you got your first job. The money you have contributed has not been invested wisely to assure you financial independence when you retire. Social Security is insurance designed to insulate you from having to live under a bridge in your old age. It is meant to provide you with a steady check that you cannot outlive or lose in a stock market downturn.
No one will ever accuse the Social Security program of being too simple or not having enough rules and regulations. The Social Security website (ssa.gov) is surprisingly user-friendly, but it is so vast and cumbersome to search that I want to offer you a more reasonable resource. Most of what I know about Social Security I have learned from a small yet mighty book titled Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages by Mike Piper. I cannot recommend this book and all of Piper’s “made simple” books enough. They are as represented: simple to read.
Between Piper’s blog Oblivious Investor (ObliviousInvestor.com), his books, and his presence on the online forum Bogleheads.org, I have gained something equivalent to an undergraduate degree in matters of simple investing. Piper is an independent CPA, licensed in Missouri, who is a prolific writer with the ability to cut out all the noise and make complicated concepts, terms, and calculations easy to understand.
As for your question about whether you will be able to count on Social Security, we can assume with a reasonable level of certainty that it will still exist when you retire. The details, however, such as how much you will receive each month, at what age you can receive it, and what that benefit will translate into in terms of buying power at the time, cannot be predicted with any level of certainty.