Most people in the year 2021 have forgotten just how big Social Security is, and that might be a good thing. Needless to say, there has been other financial news in recent memory. The average investor is likely feeling confident about his 401(k), home value, and brokerage account. Since the March 5, 2009 low of the Great Recession, the stock market is up over 350%. National home values are up over 15% since last year.

Combine such growing portfolios with newfound stimulus checks and enhanced unemployment benefits, and there is more money flowing through the American economy than ever before. While these headlines steal the limelight, Social Security seems to have disappeared from the conversation. Ok, maybe not disappeared, but at least those statements have (since 2011 projections are only mailed to workers over age 60).

Here are some key facts to help remind people of the enormity of the foundation of retirement in America:

  • The Social Security’s trust fund reserves total $2.9 trillion.
  • 2 million Americans receive Social Security benefits.
  • Nine out of ten people over age 65 receive Social Security benefits.
  • Social Security is the largest source of retiree income (roughly 33%).
  • 8 million Americans pay payroll taxes to finance Social Security.

Analyzing The Numbers

So, to give Social Security the respect it deserves, let’s see how this 86-year-old program is holding up. For purposes of this article, analysis will focus on retirement income benefits, and not Medicare or the Disability Insurance trust fund. The 2021 trustees report predicts that Old-Age and Survivors Insurance benefits (what we know as Social Security) can be paid on a timely basis until 2033, one year earlier than last year’s report. At this time, the fund’s reserves will be depleted, and taxable income should be able to cover about 76% of projected benefits.

The latest report includes some more favorable assumptions than prior years. To upgrade the outlook, total fertility rates among women were increased from 1.95 births to 2.0 births, capturing a trend towards women having children at older ages. Remember, more babies theoretically lead to more workers, productivity, and tax revenue. The long-term unemployment rate was also improved by dropping from 5.0% to 4.5%.

On the flip side, there were some negative adjustments. The most notable relate to near-term economic assumptions, particularly lesser payroll tax income and lower revenue from income taxation of benefits, stemming from the Coronavirus pandemic and 2020 recession. Due to the pandemic’s uncertain outcome, the report has not taken this into account for any long-range assumptions. The most eye-opening prediction is that total cost will exceed total income beginning this year (2021) and in all years hereafter.

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Inconvenient Truths

The difficulties surrounding Social Security have not changed. It’s simply an equation of inflows and outflows. The glaring reality is that in 1945 there were 41.9 workers per beneficiary, whereas today there are only 2.8. In addition, today’s beneficiaries tend to live much longer retirements than the elderly of generations past. These statistics are what lead to year 2021 marking a changing of the tides, when outflows overtake inflows.

If history is any guide, Congress will likely wait until the situation becomes dire before making any significant changes. While updating Social Security now would leave more options available than waiting until, say 2033, politicians may be reluctant to negatively impact one of the largest voting bases in America, the elderly. Every day an average of 10,000 Baby Boomers enter retirement, all with a hope of receiving their promised benefits.

All facts and figures are from the 2021 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds. There are six trustees, four are fixed by virtue of their position- Secretary of the Treasury, Secretary of Labor, Secretary of Health and Human Services, and the Commissioner of Social Security. The other two positions are presidential appointees, which have been vacant since July of 2015.

Bryan M. Kuderna, CFP®, MSFS, RICP®, LUTCF is the host of The Kuderna Podcast and founder of Kuderna Financial Team, a NJ-based financial services firm. He is also the author of Anoroc and Millennial Millionaire.