Addressing Social Security’s Uncertain Future

In May of 2015, a Harvard University study cast fresh doubts on the stability of Social Security. Co-authored by Gary King, the Albert J. Weatherhead III University Professor at Harvard University; Konstantin Kashin, a Ph.D. student at Harvard’s Institute for Quantitative Social Science; and Samir Soneji, an assistant professor at the Dartmouth Institute for Health Policy & Clinical Practice, the study closely compared past forecasts made by the Social Security Administration and other sources (https://lostsscard.com/ etc.) over the program’s 80 year history and actual financial outcomes.[i]

According to the results, current forecasts are overly optimistic and are likely off target by billions of dollars. As a result, insolvency may occur years sooner than anticipated.

According to Gary King, “Social Security is the single largest government program. It lifted an entire generation of elderly out of poverty, and today affects the lives of almost every American. The forecasts are essential for ensuring the solvency of the Social Security trust fund, as well for Medicare and Medicaid, which together add up to half of the entire budget of the federal government.i

However, according to King the methods used to create these forecasts and evaluate the health of the Social Security system have not been updated for the 21st century. While information collected during the study reveals that while all forecasts have been somewhat inaccurate, they remained healthily unbiased and relatively accurate to real-world performance until around the year 2000.i

However, over the past 16 years the gap between forecasts and real world performance have grown. King believes that this is, in part, because the official methods and data used to evaluate the health of the program and make predictions are not available to the general public and rely heavily on human ‘judgment calls’. Additionally, average lifespans have greatly increased while the conversation surrounding social security has grown increasingly polarized, making impartial modeling difficult.i

If current forecasts are indeed inaccurate, it means that policy and legislation may be established that does not adequately address Social Security’s true financial realities. This makes the importance of reforming and refinancing the Social Security System increasingly vital.

But what might this mean for the average consumer and the insurance agent serving them?

Social Security insolvency refers to an outcome in which the Social Security system will not possess the revenue required to pay out 100% of promised benefits to eligible participants. According to Social Security Trustees, this may occur in 2034 (possibly sooner according to the Harvard report).[ii] When this occurs it will affect the monthly income of thousands upon thousands of Americans. It is also likely that lawmakers may vote to reduce benefits prior to insolvency, or else push back the retirement age or make other adjustments to reduce the strain on the system.

In either case, the long term reliability of public funds from Social Security is increasingly in question. Therefore, retirement savers are encouraged to set aside alternative sources of private income. Accounts such as immediate and/or deferred income annuities are favored for this role as they provide tax deferred growth and guaranteed income streams. This guaranteed income* can lessen a retiree’s dependence on public funds and may prove to be the difference between a secure retirement, or financial shortfalls and impoverishment.

For more information on building reliable retirement finances using IULs and annuity products, as well as Imeriti’s unique training and marketing programs for agents in 2016, please contact the IFN team at 866.736.0652 or info@imeriti.com.

[i] http://gking.harvard.edu/ssa

[ii] http://money.cnn.com/2015/10/28/news/economy/social-security-chris-christie/



*Guarantees are backed by the financial strength and claims paying ability of the issuing company.

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The information contained herein is for general information purposes only. Imeriti, Inc. is not to be held responsible for the accuracy of this information. Neither Imeriti, Inc. nor its employees provide tax or legal advice. As with all matters of a tax or legal nature, your clients should consult their own tax or legal counsel for advice. Any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax adviser.

The information, statistics, and opinions reported herein are from sources believed to be reliable. However, Imeriti and the author of this blog do not guarantee the truth, accuracy, and reliability of any source, fact and/or statistic cited and no do necessarily agree with any opinions expressed by such sources.

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