Obama or McCain — no matter which camp you are in, a serious question arises with respect to Social Security. As a citizen, you are probably wondering if there will be funds available when you retire. In the senior market, our clients are very concerned. Many campaign commentators point out that with an increasing number of beneficiaries receiving ever-higher benefits, Social Security will eventually run out of money. Social Security is not an individually funded plan like a qualified retirement plan but a pay-as-you-go program in which current workers provide benefits for current beneficiaries. Over time, the number of retirees will approach and could exceed the number of workers.
This is not a new concern. As Elizabeth Kolbert stated in 1995 in the New York Times Magazine, “The Social Security system, unlike a legal reserve insurance system, operates on a pay-as-you-go basis. Benefits paid to current Social Security recipients are supported by currently, employed citizens paying into the system. Today, with 144 million workers supporting 50 million Americans receiving Social Security benefits, there are approximately 2.9 workers for each Social Security recipient. By the year 2029, the number of recipients will have increased to the point where only two workers will be available to support each recipient.”
You may have noticed over the years that the benefits our clients receive have been pushed further back. In order to receive full benefits, Social Security beneficiaries must wait longer now than ever before. In many cases, benefits increase from age 62 to 66, with the beneficiary receiving full benefits only at 70. The government’s Social Security Web site has a calculator that can help your clients decide what is best for them.
Whoever wins in the upcoming election, the problem of saving Social Security needs to be addressed. The Obama camp is promoting higher taxes on those earning more than $250,000 per year. McCain believes a compromise is in order, possibly a scenario with a self-funding component. Regardless of what becomes of Social Security, we can serve our clients best by being objective and listening to the clients’ needs and always disclosing the risks of the investments we recommend.