Social Security Insolvency–The Cost of Doing Nothing - 401KSpecialistmag.com
For decades, the Social Security trustees have been forecasting the complete depletion of the program’s trust fund reserves, with the most recent estimate indicating that this will occur approximately eight years from now. As part of their annual warnings, the trustees’ reports to Congress have included the expectation that reaching that point would necessitate an across-the-board benefit cut of 21% beginning in 2034. Although the percentage attached to the projected benefit cuts varies depending on which report you’re reading (the Congressional Budget Office, for example, suggests a 25% benefit reduction would be required), it’s fair to say that reaching this point would be a catastrophe for many vulnerable Americans, pushing millions into poverty.
Reaching insolvency–the point at which scheduled benefits cannot be paid in full–is not necessarily a given. Many organizations have been proposing remedies to realign Social Security’s revenue and benefit structure, ensuring that benefits continue as promised. However, to date, no serious congressional action has been taken. As everyone knows, the closer we come to complete reserve depletion, the harder it will be to make a smooth transition to a revised Social Security structure. Also, as everyone knows, this is not a self-correcting problem and congressional action must be taken, one way or another.
So, what’s in the cards for retirees–current and future–if the can is kicked all the way to the end of the road? A post on 401kspecialistmag.com by Amanda Umpierrez tackles this very question, suggesting that as much as $100,000 in additional retirement savings would be needed to balance the scales following the expected benefit reduction. Ms. Umpierrez quotes an analysis by the online platform PensionBee suggesting that the average benefit reduction would be more than $4,000 annually, although this projection assumes a 17% across-the-board cut (they’re using the combined retirement and disability trust funds, which under current law, wouldn’t occur).
The Umpierrez article, which you can read in full here, goes on to discuss the inadequacy of retirement savings and the potential impact that the insolvency problem could have on those seeking to offset the potential reduction.