Having helped people plan for and thrive in retirement for 40 years now, we have experienced the ebb and flow of “hot topics” that capture the thoughts and imaginations of our clients.

Personal planning for optimizing Social Security benefits is a very individualized process. We help our clients develop their Social Security strategies as they approach retirement and adjust them as needed if their life makes a surprise course change.

However, over the last six months we have picked up on a rising drumbeat of concern about the overall viability of Social Security, uncertainty about changes that may be made in the future, and questions about what actions to take today.

On June 18, the Social Security Board of Trustees issued their annual report detailing the financial condition of the Social Security program. There is certainly some reason for concern.

This year’s report indicates that the Old Age and Survivor Income Trust (OASI) that pays retirement benefits is projected to have insufficient revenue to pay 100% of promised benefits in 2033 – a mere eight years into the future. This is slightly sooner than last year thanks to a new law that increased Social Security benefits for certain government employees and their survivors. However, the general idea that Social Security will face this challenge in the early- to mid-2030s has been known for over thirty years.

The only “surprise” is that this deadline gets one year closer every year, and Congress has done nothing to address it.

Social Security faced this very challenge once before in 1983. Congress waited to the last possible moment to adopt significant changes to put the program back on a path to sustainability. These changes included raising payroll taxes, taxing Social Security benefits, adjusting annual cost-of-living adjustments, and gradually increasing the Full Retirement Age to 67.

Social Security enjoys broad bipartisan support in public polling. It is highly unlikely that Congress would permit senior citizens’ monthly Social Security benefits to be reduced. After all, an elected representative’s primary responsibility (for the good of the country) is to get re-elected.

One of the current President’s campaign promises was to make no changes to Social Security benefits. While there have been some changes on the administrative side of the program, thus far it appears the President has little interest in using political capital to make changes to Social Security benefits or increasing taxes.

If this holds true, when the next President takes office in 2029 there will be a mere four years remaining to solve Social Security’s financial challenges. Odds are that Congress will not pass legislation until the political threat of missing monthly Social Security payments outweighs the threat of losing their jobs for changing Social Security.

In the political world, it is more heroic to save your constituents from a massive problem at the last minute than to responsibly solve it years in advance with unpopular changes.

We believe it is important to set reasonable expectations that Social Security will be changing in eight years, but we must acknowledge we will not attain the certainty everyone craves until the last minute.

There are only so many levers that Congress can pull to get the program back on track. As of this moment, we believe the changes are likely to rhyme with these themes:

1. No reduction in Social Security benefits (current or promised) for anyone over age 55ish. Cutting current recipients’ monthly income would lead to a bipartisan revolt. Changing benefits for those already approaching retirement is unfair.

2. No increase in income taxes assessed on Social Security benefits. The political winds are blowing the other way.

3. Increase in the retirement age. For those under 55ish, it is entirely possible that the full retirement age will rise from the current age of 67.

4. Increase in payroll taxes. This is highly likely. Expect the current 6.20% FICA tax to rise by 1-3% (double that for the self-employed).

5. Reduce the annual cost of living adjustments for current and future recipients. Even a slight reduction in annual increases would have an impact on the program’s sustainability.

Social Security’s projected financial woes are highly unlikely to lead to its termination. Even if nothing is done, the trustees project that the program can pay 77% of promised benefits starting in 2033.

Our primary action steps for Social Security uncertainty varies by age. If you are already receiving Social Security benefits, the odds that your benefits will be reduced are almost zero. No plan adjustments or worry are necessary. However, your future cost of living adjustments may be reduced (a possibility we already reflect in our financial plans).

If you are under 55 or still working, changes are very likely. When planning for the future, expect higher payroll taxes and a rise in the Full Retirement Age. The good news is that we should know the answers to these questions several years before your retirement.

As always, we will be monitoring potential Social Security changes closely for actional insights that we can incorporate into our clients’ financial plans.

Quote of the week: Milton Berle:“You can lead a man to Congress, but you can’t make him think.”

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