Social Security Uncertainty Must Inspire Concerted Action

Commenting on new Social Security deficit projection figures published this week, Rob Fishbein, corporate counsel at Prudential Financial, says it’s not time to hit the panic button yet—but it is time to take very seriously the retirement income challenge individuals face.

The Social Security Board of Trustees on Tuesday released its annual report on the long-term financial stability of the Social Security trust funds, finding the combined asset reserves of the Old-Age and Survivors Insurance and Disability Insurance Trust Funds are projected to become depleted in 2034, with 79% of benefits payable at that time.

According to the Social Security Board, looking specifically at the Old-Age and Survivors Insurance (OASI) Trust Fund, this is projected to become depleted in late 2034, as compared to last year’s estimate of early 2035, with 77% of benefits payable at that time. The Disability Insurance Trust Fund will become depleted in 2032, extended from last year’s estimate of 2028, with 96% of benefits still payable.

Like others commenting on the new figures, Rob Fishbein, vice president and corporate counsel at Prudential Financial, says it’s not quite time to hit the panic button, “but it is time to take very seriously the challenges pre-retirees face.” Clearly, there may be more of a gap in guaranteed lifetime income for today’s workers than for their parents, he warns.

“The Trustees also said Medicare’s main trust fund will run out of money in 2026—three years earlier than previous projections,” Fishbein warns.

Prudential Financial experts anticipate Social Security’s funding shortfall will likely result in program changes over time, such as reducing cost-of-living adjustments, raising the full retirement age beyond 67 or cutting benefits.

“Some of those changes, if made by Congress, would likely be phased in over time in an effort to minimize harm to those closest to retirement,” Fishbein explains. “However, if Congress does not act, then estimated Social Security benefits could be cut by more than 20% when reserves run dry.”

Jill Perlin, vice president of advanced markets and sales training at Prudential, warns that, with these figures, Social Security’s financial woes have become much more imminent.

“That means it’s time to take stock of sources for income in retirement, preferably with a financial professional,” Perlin says. “You need to know what you need, when you need it and how much of it you want to guarantee.”

Offering a sneak peek at some soon-to-be released survey data, Perlin and Fishbein suggest 61% of current retirees say they couldn’t stay retired without Social Security. Younger Americans, on the other hand, say they know most of their income will come from other sources, the pair explains, with more than half (58% of Gen Xers) expecting to take on full- or part-time work beyond the traditional retirement age to supplement their savings.

The data shows the vast majority of Americans (80%) want to hear candidates for federal offices discuss their solutions for retirement security from the campaign trail during 2018 midterm Congressional elections. Nearly the same number (78%) say they support the proposed Retirement Enhancement and Savings Act, which would allow open multiple employer plans, making it easier for small employers to band together to offer retirement savings plans.

“There is great interest on Capitol Hill in addressing retirement security,” adds Fishbein, who says the Retirement Enhancement and Savings Act so far enjoys bipartisan support. “The time is ripe for some big conversations.”