The Myth of Social Security Insolvency

One of my favorite books as a child was Edith Hamilton’s Mythology: Timeless Tales of Gods and Heroes.  It tells the amazing tales of Greek and Norse mythology.  The exploits of these great heroes thrilled me.  I imagined I was Jason in search of the Golden Fleece.  Donning a window curtain as my toga and curtain rod as my sword, I slew every enemy in the living room.  (I only learned later togas were a Roman thing.)

As I grew older, I would re-read the book on occasion.  While I was less enamored of the mythological nature of the tales, I was able to see the connections to many works of art, music, and literature. The book holds up today because mythology is woven deeply into our cultural DNA.  It is who we were and who we are today.

The myth of the hero’s journey as described by Joseph Campbell in The Hero with a Thousand Faces is played out over and over again.  Search on monomyth and compare that to your favorite movies, you will be surprised by how they match up.

A more current myth that exists today is that Social Security will become insolvent by (insert your preferred date).  The idea that Social Security would become insolvent has been around at least since the early 80’s.  The lead-up to the Social Security Act of 1983 engendered lots of doomsday predictions of the impending implosion of the program.  Nearly 40 years later we are still talking about it.

The program founded in 1935 provides benefits for nearly 70,000,000 people. Actuarial tables I use in creating a financial plan predict most people living into their nineties depending on health and lifestyle.  Obviously, the number of people receiving benefits will continue to grow.

A 2021 study from the Social Security and Medicare Boards of Trustees suggests that the Old Age and Survivors Insurance Trust Fund (OASI) will be able to pay on a timely basis through 2033.  After that tax income will only be able to cover 76% of benefits due.

The report goes on to detail deficiencies in Disability Insurance and the Hospital Insurance Fund (aka Medicare Plan A) ability to pay from tax income in the coming years.  It goes into detail into the timing of the deficiencies for each of the trust fund.  It is not optimistic.

There is no doubt there is cause for concern.  The pandemic has kept a large contingent of workers on the sidelines.  No employment means no employment taxes.  This main funding vehicle for benefits has been slashed dramatically.  In addition, child births have continued to decline. We are rapidly reaching a point of not producing a sufficient population replacement rate.  That means fewer workers supporting more retirees.  That creates more pressure on the program.

So, why is the posting titled “The Myth of Social Security Insolvency”? Simple, one word: Politicians. Many of them only live to be re-elected.  Allowing the program to cut or eliminate benefits would be a cataclysmic event.  I can imagine hordes of retirees descending on Washington, DC to demand restoration of the program.  Tar and feathering along with a ride on a split rail come to mind.

While I acknowledge the immense chasm between the two political parties, I would assert that continuation of the program is something that even Democrats and Republicans can agree on.  If they do not, they will not be in office for long.

In the meantime, investors should consider updating their financial plan and how Social Security impacts it.

To learn how an independent, fee only advisor and a CERTIFIED FINANCIAL PLANNER™ professional can help you, please contact me.  Feel free to share with others and make suggestions for future articles: peter.oneill@fiduciamwealth.com