Worried About Social Security's Future? Here's What You Should Know

Matthew Cuplin |

Quite often as I help clients design and implement their retirement income plans, they ask about Social Security. After all, more than 50% of retired couples and 70% of unmarried retired individuals draw  of their monthly income from Social Security. So as a financial planner, and as a fiduciary who must put clients' best interests first, I am morally, ethically and legally obligated to understand and include Social Security into our planning. Why any adviser wouldn't do so, and with great detail and understanding, is a mystery to me.

So, being that we dive into this realm of a client's planning, I am often reminded or asked about the solvency of the Social Security program. Usually, the client fears that the program won't be around when they need it. This concern is usually fueled by what I call "water-cooler talk" with friends or fear-mongering headlines in the media. But often, what they hear is not totally accurate, so that's where the facts need to come into play.

Now, it is understandable the fear is there. According to the 2020 annual  from the Social Security board of trustees, Social Security will be insolvent in only 15 years as it currently stands. And to that end, time is running out to "save" the program before it's too late.

The report notes that Social Security could still be solvent through 2094 with a solution as simple as increasing the payroll tax by  in 2020. (This could also be accomplished by a 4.1 percentage point increase when beginning in 2035.) For reference, the current tax rate for Social Security on your wage income from work is  for the employer and 6.2% for the employee, or 12.4% in total. So this would mean raising that to a total of 15.5% now, or to 16.5% in 2035.

If raising taxes on income is not an option, a benefit cut of 19% now or 25% in 15 years would also keep the program fully solvent through 2094. It is also important to note that even if nothing is done, the combined Social Security trust funds would still be able to pay 79% of scheduled benefits in 2035. So the program won't just "go away" in any scenario in the near future.

The takeaway from all of this, I believe, is that although we do not know the exact way Social Security will play out, we can be fairly confident it is not "going away." And because of that, we need to make sure we understand the role it plays in our retirement income planning and the role it creates for other resources to fund income needs.

That's why one of the best things you can do is to make sure you are talking with a knowledgeable adviser who will help you create an in-depth plan surrounding Social Security. When meeting with an adviser about this, here are some areas to discuss with them:

• "How does this impact my tax situation?" A good adviser should understand that some states do not tax this income, and the federal government won't tax it fully under current law.

• "How do longevity planning and family health history come into the timing of taking this income?" Understanding that Social Security is very much a "use it or lose it" type of benefit, a sage adviser should discuss the pros and cons of timing the start of your benefits with more in mind than just waiting until full retirement age for the sake of doing so.

• "What is our income plan going to be if we delay taking the benefit?" If you are retired and need an income source, there are a handful of common options. Social Security is usually one, but not the only one necessarily. Balancing when and how you get your income so you have a proper combination of fixed or "guaranteed" sources, along with variable sources you hope to not outlive, is paramount to financial success.

Also, give consideration to your adviser's education and specialties. Advisers with advanced credentials like Certified Financial Planner (CFP) or National Social Security Advisor (NSSA) are trained to have extensive and advanced knowledge in this type of planning. This should help you feel better about them putting your best interests first and being competent to plan for you in this area.

In the end, Social Security will continue to be a buzzword for years to come, for a variety of reasons. Do yourself a favor and understand the facts, find someone you can trust to provide advice and create a plan that is well suited to your needs.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.