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Retirement Weekly: Good news on Social Security finances

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We received some good news earlier this month about Social Security’s longer-term solvency.

According to the just-released analysis, Social Security’s Old Age and Survivor Insurance (OASI) trust fund will remain solvent a year longer than previously thought. This is the trust fund from which Social Security benefits are paid.

This analysis in turn suggests that some of the worst nightmare scenarios are not coming to pass on how the COVID-19 pandemic would impact Social Security.

This new analysis was produced by the Congressional Budget Office (CBO), the non-partisan agency that analyzes the budget impact of various legislative proposals. To put its findings in context, it’s helpful to remember that every year the office of Social Security’s chief actuary updates its assessment of the OASI trust fund’s solvency. Its annual report typically is released in the spring.

No such report has been forthcoming this year, however. In an email, the chief actuary’s office told me that the decision about when to release its annual report is not theirs to make but instead is made by the U.S. Treasury Department. An email earlier this summer to that department asking for when this report will be forthcoming went unanswered.

So the CBO analysis may be our best alternative. In last year’s report, the CBO estimated that the OASI trust fund would be depleted by 2031. According to its new analysis, that depletion date is now a year later, in 2032.

That’s the good news.

You may object, of course. Regardless of whether the depletion date is 2031 or 2032, it still means that Social Security will run out of money in about a decade. You might think it hard to put a lipstick on this pig.

But bear in mind that in the dark days in the spring and summer of 2020, some organizations were projecting that, because of the many economic and demographic repercussions of the COVID-19 pandemic, the OASI trust fund would be depleted as early as 2026.

Solace is also provided by focusing on the bigger picture of Social Security finances. We have known for decades that the OASI would be depleted in the mid-2030s. That was the projection that Social Security’s actuaries made in 1983, the last time that modifications were made to shore up the system’s finances. And their projection has proven to be remarkably accurate.

So the financial media are doing retirees a disservice when they breathlessly report that Social Security is running out of money. While it is true that the OASI Trust Fund will get depleted at some point in the 2030s, this is not news.

Almost all Congressional watchers who I have interviewed find it inconceivable that our politicians would actually let the OASI trust fund become depleted. But they concede that the Congress will most likely wait until the last minute to shore up the trust fund’s finances. That’s what happened in 1983, after all, when Congress didn’t finally make the necessary changes until just a couple of months before the fund ran out of money—despite their having known for many years prior that they needed to make changes.

Furthermore, it’s worth remembering, even if the trust fund becomes depleted, Social Security recipients will still receive the bulk of the benefits to which they would otherwise be entitled. For example, the CBO projects that in 2033—the first year in which the OASI trust fund would be depleted—recipients would still get 72% of their benefits.

Furthermore, according to Martha Shedden, it’s not clear that you would need to change your retirement financial plan even if you believed that Congress would let the OASI trust fund get depleted. Shedden, of course, is co-founder and president of the National Association of Registered Social Security Analysts. In an interview, she said that’s because, even if only 72% of scheduled benefits get paid, Social Security will still be the primary source of income for many, if not most, retirees.

As always, she added, it’s important to run the numbers through a software program that takes into account the myriad different possibilities. Assume only 72% of Social Security benefits get paid starting in 2033 and see what happens. Given the assumptions you input into the software, you might find that it’s better to start receiving your Social Security benefits at your full retirement age (currently 66) rather than wait until age 70.

You might not, however. That’s the conclusion I reached when running the numbers for a single woman, currently aged 66. Assuming she will live another 20 years, which is the average according to Social Security’s actuarial tables, she will receive more Social Security benefits over her entire retirement by waiting until age 70 to begin receiving—even if she only receives 72% of those benefits starting in 2033.

In the meantime, there is something productive that we can do: Contact your political representatives and urge them to address Social Security finances sooner rather than later. That’s because, the longer Congress takes to shore up Social Security’s trust fund, the more difficult it will be.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at [email protected].

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