by Steven Schou, CFP, CFO, Senior Partner, Investment Advisor Representative
According to the National Commission on Fiscal Responsibility and Reform (NCFRR) report dated December 2010, Social Security as an economic foundation for millions of Americans is far from fiscally sound.
From a historical perspective, when Franklin D. Roosevelt signed the Social Security Act into law in 1935, average life expectancy was 64, and the earliest retirement age for Social Security was 65. FDR originally set up the Social Security program as a safety net, or first tier of support, but it was never intended to be the sole source of retirement income.
Today on average, Americans live 14 years longer, retire three years earlier and spend 20 years in retirement. In 1950, there were sixteen workers per beneficiary; in 1960, there were five workers per beneficiary. Today the ratio is three workers per beneficiary and that ratio continues to shrink.
Unless Congress acts, these immense demographic changes will bring the Social Security program to its knees. The program has already, at various times, spent more on beneficiaries that it has collected in revenue.
In 2010, the NCFRR report stated that if nothing is done out of Washington about Social Security, that by 2037, there could be an immediate 22% across the board benefit cut for all current and future beneficiaries.
The Commission Report laid out ten recommendations to help gradually bring the Social Security System back to fiscal balance over a period of the next 37-60 years. Minor adjustments over many years is a more realistic strategy and should not affect current beneficiaries, while giving future beneficiaries some hope that the Social Security System will remain a retirement safety net as originally intended.
According to the NCFRR Report, to save Social Security for the long haul, all of us must do our part. High income earners will probably have to pay the most by taking lower benefits than scheduled and pay more in payroll taxes. Middle income earners who are able to work will probably need to work a little longer. At the same time, Social Security must do more to reduce poverty among the very poor and very old who need help the most. A retirement security solution needs to recognize and incorporate the challenges for self-reliant Americans who take responsibility for their families through a lifetime of work. It should encourage Americans to build wealth through savings and investment that will generate a return sufficient to allay fears that retirees will outlive their savings and should permit Americans to have the option to pass on the remainder of their accumulated savings to their heirs. Americans need a fiscally responsible personal retirement savings system that is funded before the need, supplements the pay-as-you-go Social Security system, and accumulates funds for investments in business and infrastructure to help sustain a healthy economic growth rate.
Yes, changes are needed, yet if we all get on board and hold Congress accountable to make the appropriate gradual, long-term adjustments, Social Security will remain a viable program.
As the legendary motivational speaker Zig Ziglar said, “Getting knocked down in life is a given. Getting up, starting from where you are, and moving forward is a choice.”
We, as Americans, need to make that choice — for our future.
References: The National Commission on Fiscal Responsibility and Reform, The Moment of Truth, The White House, December 2010.
Steven (Steve) Schou
CFO, CFP®
Senior Director
Investment Advisor Representative
815-877-8440 (Ext. 128) (Northern Illinois)
608-442-5637 (Southern Wisconsin)
steves@klaasfinancial.com
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Steve serves as Chief Financial Officer, and is a co-owner of Klaas Financial, inc., and its’ subsidiary companies. Steve has worked in the financial services industry since 1979 and obtained his Certified Financial Planner certification in 1994. Steve is a member of the Financial Planning Association and locally on the executive board of Patriot’s Gateway Center.