The Social Security Program will not Leave Retirees High and Dry

Joe Elsasser, CFP®, President of Covisum
August 12, 2019
    

With the latest advances in technology, it’s easy for clients to become overwhelmed by a flood of information that may or may not be accurate. Inaccurate information about the Social Security program is especially rampant. The most common misconception of course, is that the program is going to run out of money, leaving seniors high and dry. This alarming information drives many retirees to consider taking their Social Security as soon as they are eligible, despite the fact that it’s often completely at odds with their best interest. As a financial advisor, you can help educate your clients about the Social Security program and guide them to make the best decisions for their specific situation.

The Misconception: Social Security is Broke

This is a pretty broad statement, and the situation is a little more nuanced.  Social Security should be able to pay benefits in full on a timely basis until 2037. This will fluctuate some based on interest rates, contributions to the system, when people elect, how many people elect and other factors.

So what happens in 2037? Some have speculated that Social Security checks will simply stop, but that just isn’t true. Social Security would still be able to pay 77 cents of every promised benefit dollar, even if the only thing coming in was tax money. Additionally, recently proposed legislation has been introduced to address these challenges.

Proposed Legislation

Recently, Representative John Larson (D-CT) Chair of the Social Security Subcommittee of the House Ways and Means Committee introduced new legislation to amend the Social Security program. The aim of this effort, known as The Social Security 2100 Act, is to avoid the future exhaustion of funds available for the program.

The Social Security 2100 Act Would:
  • Provide an across-the-board benefit increase, equating to about two percent of the average Social Security benefit
  • Make adjustments to protect against inflation by improving the annual cost of living adjustment (COLA) formula as it relates to senior costs
  • Increase the minimum benefit to help ensure that workers with many years of low earnings do not retire into poverty
  • Ensure that Social Security benefit increases do not equate to a reduction in benefits related to Medicaid or the Children’s Health Insurance Program (CHIP)
  • Gradually increase the payroll tax rate starting in 2020 to help keep Social Security solvent. By 2043, the average worker would be paying an additional 50 cents per week
  • Require the payroll tax to be imposed on earnings over $400,000 a year
  • Cut federal income taxes for 12 million middle-income Social Security recipients

It’s highly unlikely that all or even most of the provisions of the Act will make it into law, but some reform will be critical within the next few decades. If you look to the history of the system, significant changes have been phased in over time, and generally don’t have a negative impact on anyone who is within a few years of claiming.

With all the confusion surrounding Social Security’s future, it’s easy for consumers to become nervous. This uncertainty however, isn’t necessarily a bad thing. It creates an opportunity for financial advisors to be the experts that clients are looking for and provide them with clarity concerning the program. Successful advisors embrace this opportunity as a way to build their reputation as a true client advocate.

The bottom line is this: Social Security isn’t going away any time soon. Take the time to educate your clients so that they have the understanding they deserve and the knowledge they need.

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Posted by Joe Elsasser, CFP®, President of Covisum
Joe developed Social Security Timing® in 2010 because, as a practicing financial advisor, he couldn’t find a Social Security tool that would help his clients make the best decision about when to elect their benefits. Inspired by the success of Social Security Timing, Joe founded Covisum®, a financial tech company focused on creating a shared vision throughout the financial planning process. In 2016, Covisum introduced Tax Clarity®, which helps financial advisors show their clients the hidden effective marginal income tax rates that can significantly impact cash flow in retirement. In early 2017, Covisum acquired SmartRisk™, software that allows advisors to model “what-if” scenarios with account positions and align a client’s risk tolerance with their portfolio risk. Covisum powers some of the nation’s largest financial planning institutions and serves more than 20,000 financial advisors. Based in Omaha, Nebraska, Joe co-authored “Social Security Essentials: Smart Ways to Help Boost Your Retirement Income,” is a regular speaker at industry events and is frequently interviewed by trade and national media.