Social Security is on pace to exhaust its reserves by 2033, and it’s not the solution to the income shortage facing the American public.
Today, 56 million Americans rely on Social Security and they receive an average monthly check of $1,125. Sadly, this monthly sum is the only source of income for the vast majority.
The instability of Social Security means that financial advisors will be called upon to solve America’s income-deficit problem. Are you ready?
Social Security = Social Insecurity
Contrary to popular opinion, Social Security was not created because of public demand or need.
“It was sold by the slickest devices of Madison Avenue,” stated Milton Friedman, a Nobel Prize winning economist.
Friedman observed how the very language behind Social Security is “misleading.”
For instance, the payments that Social Security recipients receive are commonly referred to as “benefits,” but the truth is they are subsidies. Here’s what’s really occurring: Younger tax payers, via Social Security taxes, are subsidizing the payments received by retirees.
On July 28, 2012, the Social Security system celebrated 75-years of existence. And while politicians celebrated on the House steps of the Capitol and bragged about the financial soundness of the system, there was no mention of another important milestone achieved by Social Security: It now pays out more in benefits than it receives in payroll taxes.
The ‘Early Claimers’
Another element of America’s income deficit problem is the “early claimers.” These are the people who have been forced to collect their Social Security benefits sooner than planned. Most of the early claimers are retirement age but are either unemployed or work part-time. Others have completely exhausted their savings.
The Center for Retirement Research at Boston College estimates that early claimers experienced a 4.6% decline in benefits or a monthly reduction of Social Security benefit checks by $56. While a 4.6% decline might not seem like much, it’s a lot to be losing for income strapped people with no other significant source of income.