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May
20
Perhaps those in the know were not surprised with the 2009 Social Security Trustees report issued this week. Bottom line is that the recession and recent weak market performance means the trust fund will be depleted by 2037, four years earlier than previous estimates. Worse, Medicare will be out of money by 2017, two years earlier than previously thought.
Some reports and commentary touted the relative strength of the Social Security system, as compared to the overall market and the ever-shrinking values of 401(k)s and IRA’s. Here’s one from the director of the Center for Retirement Research at Boston College, where she suggests an easy fix for Social Security is to simply increase the payroll tax 2%. Raising taxes these days seems inevitable, but 2% here, 2% there and pretty soon Americans will realize we’re talking about real money here.
We don’t know what the solution is to the Social Security and Medicare financial mess, but we do agree with the American Academy of Actuaries in that it is a demographic problem requiring a demographic solution:
According to Social Security Administration (SSA) actuaries, 65-year-old males in 1940 lived on average 11.9 additional years and 65-year-old females lived 13.4 additional years. By 2008 those figures had increased to an estimated 16.9 and 19.3 years, respectively. The SSA actuaries’ intermediate projections show that life expectancy at age 65 could increase even further– with males living on average 19 additional years by 2040, and females 21.1 more years.
“Demographic problems require demographic solutions,” Bruce Schobel, the president-elect of the Academy said. “You just cannot have people living longer and longer with a frozen retirement age. At some point, the system cannot afford it. There are many options available to policymakers, and as actuaries, we believe that increasing the retirement age should be a part of any solution.”
There is no doubt actuaries and policymakers will address these problems now sooner instead of later. But in the meantime, your role as a financial advisor is to make sure your clients are prepared for a future where the government isn’t able to meet its obligations.
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