On the Solvency of Social Security

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Social Security’s shortfall grew by a record 18% in the last year. That $3 trillion increase means that it is more likely beneficiaries will face reduced benefits in the future, and the longer we wait the harder it will be to solve the problem.

The Trustees Report for the Social Security Trust Funds was released on August 31, 2021, and, within hours, all 270 pages of financial information was condensed by the media into a single sentence:

Based on the latest Social Security Trustees Report, the combined OASDI program will be insolvent by 2034, at which point there will be only enough incoming revenue to pay out 78% of scheduled payments.

Strangely enough, that synopsis was enough to satisfy the curiosity of most Americans about a system on which many of them will depend in old age. Generally, the average person believes that this sentence means that Social Security is a train on the same track, only a little bit closer. In fact, the report in a fuller light means is that the train now approaching is 40% bigger than it was two years ago, running on tracks that are less stable.

Advisors need to have a firm grasp of the system’s finances because a lot of clients will not.