Social Not-So Security

Social Security. We pay into it but we’re constantly questioning if we’ll ever see that money when we need it. I was interviewed by PLANSPONSOR about how Social Security Burdens Fall on Younger Workers and it got me thinking.

Over the summer, the annual review of the Social Security Trust was released and announced 2035 as the new date in which the stash will be depleted.  Even in the best of times, the spending levels of the federal government and the debt situation could mean that the social security safety net is not really so secure.

There are valid questions about the solvency of the Social Security program for the long term in general, let alone in the unprecedented times in which we currently live.

Burdens on the safety net have grown significantly in 2020 as the U.S. government increased spending to historic highs by adding multiple trillions of dollars in an effort to aid Americans and shore up economic productivity. 

It is hard to see how this level of spending is sustainable without dipping into the long-terms savings coffers.

At its peak, unemployment numbers were upwards of 25 million individuals and, what is more, countless have been furloughed, reduced to part time hours, or even opted for early retirement.  While jobs have been returning and the employment numbers have thankfully been increasing over the summer months, the usual revenue received from payroll tax has been slashed. 

More money has been, and will continue to be, going out than coming in.  Current interest rates are at rock bottom which will impact the ability of the Social Security Trust to grow. These shifts in earnings will almost certainly impact the overall strength of Social Security. 

For the time being, the immediate impact seems negligible.  Current beneficiaries are set to receive a cost of living adjustment of 1.3% for 2021. However, the big losers will be Millennials and Gen Z-ers that are paying into the system currently with no strong hopes of reaping the full benefits.

For these younger workers specifically, COVID-19 disrupts the regular patterns of work and wages.  Future social security benefits are based upon calculations of top earning years, and if economic conditions remain slow and stubbornly protracted, a generation of workers will be unable to grow their income, pay down student loan debt, save and meaningfully improve their lifestyle. 

So what are we younger savers to do? 

First, we need to be sure to have an emergency savings in place in case of a lapse of employment.  Having 3-6 months of needed cash on hand will relieve budgetary worries while you search for another job.  Also, we can be more thoughtful about spending and decrease the debt.  Now is a great time to pivot from frivolous spending to saving.  Online shopping can be a great comfort in times of anxiety, but nothing provides more comfort and peace of mind than knowing that you can weather the financial storm.

Next, take providing for your long-term financial security into your hands.  Do not count on receiving Social Security benefits, but instead, take advantage of saving and investing in your personal retirement plan and IRAs. Maximize your contributions to retirement plans and be sure to capitalize on the company match…it is essentially free money!  Also, consider opening a Traditional or Roth IRA to put extra money aside and grow in a tax friendly manner. 

Make that money work for you by investing for growth.  As young savers, we have the benefit of time on our side.  While markets do experience ups and downs, history tells us that, for the long-term, growth-oriented investment pays off.  Review your asset allocation on all investments to be sure you are capturing hardy returns.

If 2020 has taught us anything, it is that uncertainty exists.  Taking control of your personal finances is a surefire way to remove one obstacle and create peace of mind.  Compound earning is an invaluable benefit.  Regular saving and investing in personal accounts over time is the best recipe for growth and achieving the ultimate goal – financial independence.