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Your retirement is years away. Can you count on Social Security?

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OUTSIDE THE BOX

In the 86 years since President Franklin D. Roosevelt signed the Social Security Act, Americans have come to expect their benefits. But today’s preretirees may wonder if those benefits will survive over the next few decades.

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As the federal government spends trillions of dollars amid a pandemic, fears of Social Security’s demise grow. Nearly half of millennials (47%) believe they “will not get a dime of the Social Security benefits they have earned,” according to a recent Nationwide Retirement Institute study. Overall, 71% of adults age 25+ worry about the Social Security program running out during their lifetime.

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Perhaps they’ve heard that Social Security Trust Funds might empty out in 2035, leaving recipients with only 79% of their promised benefits payable at that time. That’s what the Social Security Board of Trustees concluded in April 2020—before pandemic-driven federal spending soared.

Yet experts aren’t overly worried. They argue that Congress can modify Social Security’s financing mechanisms to preserve its longevity.

“Social Security is so popular among Republicans and Democrats,” said Eric Kingson, co-author of “Social Security Works for Everyone!” “No politician wants to deliver the message that it can’t pay” its promised benefits.

He adds that there are straightforward ways that Congress can address any shortfall, such as raising the payroll contribution cap from its current $142,800 to, say, $400,000. (Any income earned above the wage cap amount is excluded from the Social Security payroll tax.)

The government can also rethink how it invests Social Security’s financial reserves. Because it buys U.S. Treasury bonds—and no stocks—the investment returns often underperform the broader market. 

“It’s not unreasonable to invest some of that in equities,” said Kingson, a professor of social work at Syracuse University. While diversifying into more volatile assets poses risks, it can also strengthen the program’s long-term viability and address at least some of the anticipated shortfall in the 2030s.

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Even without these and other potential changes in financing, financial advisers aren’t especially concerned about the program’s likelihood of collapse. They may point out that Social Security has never missed paying benefits in its long history. And most of its revenue flows from payroll contributions so that creates a continuous income stream.

“I’d be surprised if anyone over age 40 sees any change in their Social Security benefits,” said Jeff Branson, a certified financial planner in Biddeford, Me. “But for people under 40, there will be changes based on the numbers right now.”

Another adviser, Beau Henderson, is slightly less optimistic. He predicts that people over age 50 need not worry about a benefit cut.

“But if you’re below 50, Social Security might not be as big of a piece of income for you,” said Gainesville, Ga.-based Henderson. “You may be responsible for a bigger piece, so it’s important to prepare now for that.”

Henderson assures his younger clients that even with modifications to the program, they can still count on Social Security.

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“What government does really well is kick the can down the road,” he said. “So we’ll see small, incremental changes to keep the system viable.”

He urges clients to start calculating what they might receive from Social Security well before they near retirement. Younger Americans receive printed statements from the Social Security Administration every five years that estimate future monthly benefits based on retirement age.

Rather than wait for these statements to arrive in the mail, create an account at myaccount.socialsecurity.gov. That can help you track estimated benefits for you and your spouse with each passing year.

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