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Is Social Security Going to Run Out of Money?

Question


Dear Bob,


What kind of shape is social security in right now? I continue to hear that it will run out of money. What is the reality of it?


Answer 


The trustees that monitor the trust fund which backs the payments of social security will run out of money in 2034. However, it might be sooner than that because the 2009 report stated it would happen in 2039. So, yes the rumors are true. However, that does not mean that the benefit is going away. There is still money coming into the fund each month. The problem is that the money that comes in will immediately go out in the form of benefits.


According to the trustees report, as it stands now, retirees would get only 77% of their benefit starting in 2034. Here a couple of thoughts:


First, this would immediately affect the baby boomer generation. My thought is that the politicians will pick and choose who gets effected by this up and coming problem. The baby boomer generation just due to its size represents a huge voter block. My guess is that no politician is going to risk angering that generation with a reduction in benefits.


Second, there are several adjustments that can be made. However, they need to be made sooner rather than later. They will probably first raise payroll taxes for immediate relief. Then they will probably adjust the age of when future generations can get benefits. Then they will probably eliminate cost of living increases as a last resort. The bottom line is that the other generations will pay for the irresponsibility of the politicians and their poor management of the trust fund. Isn't that always the case?