The Insufficiency of Social Security to Fund Retirement
With a checkered history and the very real fear that funds could be depleted before many current workers can benefit from them, Social Security may no longer be the safety net it was envisioned to be when it was established nearly 85 years ago. Today’s seniors, as well as younger Americans planning for retirement, must pursue other financial avenues to ensure comfort during their later years.
The timeline of Social Security, from the time it was created to provide benefits for workers who retire at age 65 or older, includes several expansion measures and other adjustments to deal with the nation’s financial downturns. The last major legislation designed to protect the fund, passed in 1983, called for a gradual increase of eligible retirement age from 65 to 67 and boosted the Social Security tax with the hopes of generating a surplus to help take care of Baby Boomers when they reached retirement age.
That day has been reached, and the surplus is disappearing fast. Following are three of the chief causes of Social Security’s decline:
An Imbalance Between Workers and Beneficiaries
The expected surge in retirees as Baby Boomers have left the workforce has been met with a corresponding decline in the number of workers, so that the contributions to the fund are not nearly enough to cover those who need it today. The worker-to-beneficiary ratio is expected to fall from 2.8-to-1 to as low as 2.1-to-1 by the year 2035. (source: The Motley Fool)
An Upward Trend in Life Expectancy
Studies from the Center for Disease Control predict that people born today can expect to live to an average age of 78, up from 70 just 50 years ago. Notably, however, life expectancy declined slightly between 2014 and 2017 not because of increased mortality among seniors, but due to the alarming rise in suicide and drug overdose fatalities. The broad trend—that Americans are living longer—will lead to an ongoing drain on the Social Security nest egg.
Record Low Yields for Special Issue Bonds
These bonds, traditionally the source of interest income for the Old-Age, Survivors, and Disability Insurance Trust (OASDI) that funds Social Security, are generating less income than ever due to historically low interest rates. If interest rates stay low, the bonds will produce yields that are often lower than the inflation rate. As a result, the Social Security surplus will disappear faster without a steady source of income to stabilize it.
Future legislation could very well address the insufficiency of Social Security and take measures to shore up the program, but seniors can’t count on the survival of an issue that is a known political football with a host of sustainability issues. A life settlement can be an ideal way for many seniors to secure a cash windfall in exchange for an unneeded life insurance policy, and the proceeds from the settlement can help fund retirement expenses that Social Security once covered for past generations. For more information about life settlements, contact Magna today.