Recent news supports the theory that some of President Trump’s policies may make the Social Security system more solvent. In this week’s episode, Devin and John talk about the factors that may impact how long the Social Security trust fund lasts.
According to the Social Security Administration, Social Security benefits represents about 40% of the average retiree’s income. That’s not the average of Devin’s clients, but it is still a very important part of everyone’s retirement income. Regardless of your overall retirement picture, Social Security benefits represent a large chunk of money. The concept of the longevity of Social Security is important to everyone. Even if you don’t need your Social Security benefit in order to get by, that benefit is preventing you from tapping other savings and assets.
President Trump has long said that the fix for Social Security is not benefit cuts, and it is not tax increases. All we need to do is increase certain economic indicators, and Social Security will fix itself. And when you look in the Social Security trustees report, it agrees with what President Trump is saying.
Right now, it is estimated that the Social Security trust fund will run out of money in 2035. At that point, the program will only be able to pay out about 75% of calculated benefits.
Unemployment and Other Economic Indicators
Economists believe that one of the most important economic indicators is unemployment. If you have a job, you have income, and with income comes spending, and so on. The Social Security trustees report talks about the unemployment rate as that one of the factors that will determine how long the Social Security trust fund will last. If more people are working, there are more Social Security taxes being paid in, which make the trust fund last longer.
In the report, the Social Security trustees list factors that will contribute to the solvency of the Social Security system. These include unemployment, inflation, immigration, and other factors.
Unemployment rates have been impressive. Is this a direct result of the policies of the Trump Administration? They have been coming down for the last 9 years, so the basis of the drop could be found several presidents back. Devin doesn’t think that the President doesn’t have as much to do with the economy because they don’t control monetary policy. However, the changes to the tax law have impacted the behavior of companies. John shares that his company saved enough in taxes to hire another employee. Companies who are paying lower taxes have more money to hire employees, and large companies will project that savings into the future.
What brings all of this up now is that the first quarter 2019 Gross Domestic Product (GDP) figures have been released. GDP is a measurement of a country’s economic activity. If GDP is up, typically you will see the other numbers follow. The first quarter US GDP exceeded expectations, with a larger than anticipated increase.
Just because the Social Security trustees report today shows that Social Security trust fund is in trouble, it could play out a little differently that what the trust report shows right now. Things can, and do, change. If the economic numbers continue to increase, the trust fund will last longer.
Devin’s has a solution for the Social Security problem: The easy fix for Social Security would be to reintroduce the earnings limit across the board. When Social Security was created, it was meant to keep people out of poverty. There was an earnings limit for receiving benefits. Over the years that earnings limit has gradually gone away, until now there is only an earnings limit until you reach full retirement age. Devin says that reintroducing an earnings limit would make Social Security completely solvent.
John speculates that if reintroducing the earnings limit would solve the problem, then decreasing the cap on Social Security taxes should also solve the problem. Devin says no… If they just completely eliminate the tax cap, and you get no credit to your future benefit, that would fix 83% of your shortfall. If they eliminate the tax cap, and you do get credit to your future benefit, it will fix 68%. There is also an option to insert a gap – a range of income that is not subject to taxes.
Instituting an earnings limit would solve the problem, depending on where you put the earnings limit. No one would like that, but it would work. These ideas would probably impact the people who listen to this podcast. So what do you think?
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