FIVE THINGS YOU SHOULD KNOW
INSIGHTS for INVESTORS
Social Security: A Conundrum of Fixes
By Ben Klundt
The death toll experienced during the Civil War posed quite a problem, especially to the widows and children that it left behind…wait…what does the Civil War have to do with Social Security? Let’s dig into the history then talk about some of the potential fixes.
Believe it or not, the Civil War was one of the catalysts to expand a federal pension program. Shortly after the start of the War in 1862, legislation was passed that would provide for a beneficiary of a deceased persons at what the deceased would have received if they were on veterans’ disability. There were multiple expansions of the Civil War Pension and by 1910, over 90% of Civil War Veterans had qualified for the pension. Between the Civil War Pensions and a massive expansion of corporate pensions during the early 1900s, these acted as the model for what would later become, Social Security.
In 1935 President Franklin D. Roosevelt signed into law the Social Security Act. This was meant to provide “additional” income to folks over the age of 65 and act as an insurance program. Social Security plays a massive role in folks’ retirement planning now and certainly has changed over the years. I won’t get into all those changes, but I will say, most were made to keep the program solvent. We could also go into the many reasons why the program is once again on track for insolvency, but we’re not going to focus on the potential negatives because, today we’re all about the positives.
So, yes, Social Security isn’t on track to be “overfunded” and is maybe running a little short on cash. Many people unnecessarily, but understandably worry this means their benefit is going to disappear. The absolute worst-case scenario discussed these days is a reduction to 76% of the current benefits paid which would make the program solvent again, and even that would likely be grandfathered in. This being said, the government doesn’t want to cut benefits for those currently receiving distributions from the program.
It’s also very unlikely the government will default when we have a printing press and a well-established status as the world’s reserve currency, which despite the fearmongering out there, isn’t changing anytime soon. That “solution” taken too far could result in purchasing power losses via inflation, but with the twin deflationary forces of technology and shrinking demographics, that too is still quite unlikely.
Here are some of the most probable changes we’ll see in the future as a “fix”:
How We Help
When we’re helping a client with their financial planning, our goal for them is to maximize the likelihood of success of that plan and what they can do within it. Depending on their portfolio size and spending goals, Social Security benefits often play an important role, as does the related question of when they apply for benefits. We work to ensure you know when to file and if you should file for your own benefit or a spousal benefit in order to make certain you and your family can receive the maximum benefit which fits within your goals and outlook.
I know it may seem like Social Security is on track for disaster, but hopefully the information above provides you with a little more confidence that there are solid solutions. We may not all agree on what the fix should be, but there should be a collective effort to keep this benefit in place.
Thanks for taking the time to read this, and I hope you found the insights helpful. If you have any questions regarding your Social Security benefits or how we’ve included them in your individual plan don’t hesitate to reach out. We’re here for you, client or not.
Have a great Weekend!
Ben and the Ten Capital Family
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