In 2000, actors Helen Hunt and Kevin
Spacey starred in “Pay It Forward.” The premise of the film is that a person
repays a favor by offering small acts of kindness to more people. This concept
of paying it forward leads to an exponential movement of goodwill.
Social Security works a bit like that. In other
words, FICA payroll taxes collected from today’s workers are used to pay Social
Security and Medicare benefits for retirees. When workers retire, their
benefits will be paid by tomorrow’s workforce, and so on.1
Investing works a little like that as well. You
invest money as you work and hope that the stock market will grow to produce a
larger nest egg in the future. However, the stock market can be volatile, so
sometimes you can lose the gains you earn and even the principal you invested.
There are other ways to pay yourself forward. Call us to inquire how an annuity
can provide a guaranteed stream of income during retirement. That way you can
be sure that the money you pay forward definitely comes back to you in
retirement.
Unfortunately, there are problems with the
pay-it-forward strategy used for Social Security. One glaring issue has become
evident in the wake of the pandemic. With more than 40 million people out of
work, there were less FICA tax revenues paying into the Social Security system.
This means that, according to some estimates, the program could be insolvent by
2030.2
Then there is the issue of sustained low inflation
due to the current lack of consumer demand for goods. For most people, low
inflation is a good thing. However, Social Security beneficiaries receive a
cost-of-living increase only when there is a correlating jump in inflation, as
measured by the Consumer Price Index (CPI). Preliminary estimates for a 2021
adjustment is little to none, given today’s current environment. This situation
is exacerbated by the fact that things retirees tend to spend a greater portion
of their income on, such as health and long-term care, grow much faster than
the rate of inflation. Since 2000, the inflation adjustment for Social Security
benefits has increased by 53%, but the cost of items purchased by retirees has
nearly doubled (99%).3
Then again, we have even bigger problems than
benefits not keeping up with inflation. Thanks to the $2.4 trillion (so far)
stimulus passed by Congress to help offset the economic impact of COVID-19,
America’s debt has risen higher than ever. While it may be necessary to provide
funds for individuals, small businesses, large industries and unemployment
benefits to help kickstart the economy, that debt creates a long-term challenge
for the federal government.4
To reduce debt, fiscal policies will need to be
changed to either raise taxes, reduce spending or both. While Social Security
is funded by a separate (FICA) payroll tax, legislators may look to cut
benefits in the future to reallocate more money to pay down the national debt.
Recent proposals to help make the Social Security more viable include reducing
disability benefits, increasing full retirement age and/or raising the payroll
tax cap, currently at $137,700.5
At Imber Wealth Advisors, we help people in the Ann Arbor area plan for retirement. With a strong financial plan in place, we can help you prepare to leave the workforce and live comfortably. Take control of your financialfuture and give us a call at (734) 769-1719 today!
1 Jean Folger. Investopedia. April 27, 2020. “Why
Is Social Security Running Out of Money?” https://www.investopedia.com/ask/answers/071514/why-social-security-running-out-money.asp.
Accessed June 1, 2020.
2 Caitlin Emma. Politico. May 19, 2020.
“Coronavirus could push Social Security to insolvency before 2030.” https://www.politico.com/news/2020/05/17/coronavirus-social-security-2030-261207.
Accessed June 1, 2020.
3 Alessandra Malito. MarketWatch, Inc. May 30,
2020. “Social Security recipients may be in for a rude awakening later this
year.” https://www.marketwatch.com/story/social-security-recipients-may-be-in-for-a-rude-awakening-later-this-year-2020-05-12?mod=retirement.
Accessed June 1, 2020.
4 Jim Sergent, Ledyard King and Michael Collins.
USA Today. May 8, 2020. “4 coronavirus stimulus packages. $2.4 trillion in
funding. See what that means to the national debt.” https://www.usatoday.com/in-depth/news/2020/05/08/national-debt-how-much-could-coronavirus-cost-america/3051559001.
Accessed June 1, 2020.
5 Aimee Picchi. USA Today. Feb. 12, 2020. “Social
Security: Here’s what Trump’s proposed budget could mean for your benefits.” https://www.usatoday.com/story/money/2020/02/12/social-security-trump-budget-aims-cuts-disabled-workers-program/4738795002/.
Accessed June 1, 2020.
We are an independent firm helping individuals create retirement
strategies using a variety of insurance and investment products to custom suit
their needs and objectives. Or firm is not affiliated with the U.S. government
or any governmental agency. This material is intended to provide general
information to help you understand basic financial planning strategies and
should not be construed as financial or investment advice. Investing involves
risk, including the potential loss of principal. Any references to protection
of benefits, safety, security, or guaranteed lifetime income generally refer to
fixed insurance products, never securities or investment products. Insurance
and annuity product guarantees are backed by the financial strength and
claims-paying ability of the issuing insurance company.
The information contained in this material is believed to be
reliable, but accuracy and completeness cannot be guaranteed; it is not
intended to be used as the sole basis for financial decisions. If you are
unable to access any of the news articles and sources through the links
provided in this text, please contact us to request a copy of the desired
reference.
Investment Advisory Services are offered by
Imber Financial Group, LLC., a Registered Investment Adviser firm. Insurance
services are offered through Imber Wealth Advisors, Inc. Imber Financial Group,
LLC. and Imber Wealth Advisors, Inc. are affiliated companies
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