Will Social Security benefits be there when you transition to retirement? That’s a good question and one that should be addressed in your financial plan. The short answer is yes, Social Security will likely be there for you in some form no matter what your age, but probably not in the exact form that exists today.
The health of Social Security is the subject of much discussion and even some debate. The Congressional Budget Office’s (CBO) most recent projections show that benefits paid out of the program will exceed Social Security taxes collected by 2023. The much-discussed Social Security Trust Fund is projected to be depleted as early as 2034. Here is a link to the most recent report: http://www.cbo.gov/publication/43648.
Given this depressing news, many people question whether they should include Social Security in their long-term financial plan. The good news is that there are a number of solutions being debated in Washington to address the funding and demographic problems outlined in the CBO’s report. Some of these include increasing the age that people can receive benefits, increasing Social Security taxes, or changing the way inflation is calculated on future benefit increases. Here is a link to a Huffington Post article outlining some of the most popular proposals: http://www.huffingtonpost.com/2013/02/18/change-social-security_n_2708000.html
Given these dynamics, it is highly likely that some changes will be made to the program to extend its long-term solvency. What this means to beneficiaries is that the benefits you receive from the program will probably be different, and less rich than current projections.
As financial planners, we look at how the retirement projections come out with Social Security benefits at the currently projected levels, and then without the benefits at all. This offers a best and worst case framework for the projection as it relates to Social Security. We often model a “middle of the road” scenario illustrating benefits at a reduced level or starting later than the current retirement age. These scenarios help our clients understand how potential future changes to Social Security will impact their retirement plan.