According to a recent report by the Wharton School of Business at the University of Pennsylvania, the financial state of the Social Security program is worse than the government says it is.   This should not be a surprise, as government forecasts for future spending needs are often underestimated.  The Wharton report believes the government is not factoring in the future increase in the national debt which will ultimately reduce the expected growth of the payroll tax base.

The Wharton report projects the Social Security trust fund will be depleted by 2032, while the government had projected its solvency through 2058.  The report stress that “increases in the national debt reduce the tax base on which Social Security tax is levied because an increase in debt reduces the capital stock, which leads to lower GDP, less work and a shrinking tax base for both Social Security and general federal revenues”.

The implications for future retirees and investors are clear:  Significant adjustments to your investment portfolio and overall financial plan are necessary to secure your financial retirement goals.  If you’re aged 60 or under, you should not plan on receiving 100% your projected Social Security benefits. If the fund runs out of money, benefits will need to be cut; the amount of income taxed for Social Security will have to be increased; or the retirement age will have to be raised.  It’s likely that some combination of all three solutions will be needed.  For those over 60 or already in retirement, most of your projected benefits are likely to be paid.  Small changes in the program could push out the insolvency date, but adjustments to your portfolio will probably still be needed to ensure a steady source of retirement income.  For more information or strategic planning with your investment portfolio, please call us to schedule a retirement review.