We already know that Social Security will be dealing with tough challenges in just a few years if something truly significant doesn’t change, and soon.
We also know that last year’s pandemic probably made things much worse. In fact, this year the “new normal” for Social Security could turn any cost-of-living adjustment (COLA) for next year into an empty gesture.
(Can we agree the entire Social Security program would be euthanized if it were a mutual fund or private pension?).
Overall, the bureaucrats who should be working around the clock to come up with real solutions for retirement savers are giving us the impression that…
“Benefits are going to get cut. Deal with it.”
This is not comforting.
Inflation in the U.S. is close to spiraling out of control. For the near-term, any COLA offered by Social Security is likely to evaporate like water on a hot street. Consider: the 2021 adjustment for inflation was 1.3% which is just noticeably smaller than the 4.2% year-over-year official inflation number and almost invisible compared to the nearly-8% inflation based on real-world experience.
One source claims the COLA will be 4.7% in 2022, but we’ll have to wait and see. Hopefully the actual inflation rate won’t be 6x higher than the adjustment this time…
Remember, every time the Social Security Administration makes a cost of living adjustment, Social Security’s reserves dry up faster. There’s no incentive beyond playing fair to prevent those COLA numbers from being lowballed year after year.
That’s one “solution” that might be marginally more politically acceptable than actually cutting benefits.
Even so, anxiety about Social Security’s solvency and worry about benefits is everywhere.
A financial tech company, Covisum, even created a Social Security benefits cut calculator to let us calculate optimal scenarios. Obviously, the expectation that benefits will be cut is baked into the tool.
An article on CNBC laid out the reasoning for this potentially dire scenario:
The funds Social Security draws from to pay benefits are running low. Benefit cuts could be one of the changes politicians consider to fix the system.
Let’s keep in mind that any Social Security benefits cuts would reduce the guaranteed monthly payments to the very retirees who paid for it. That’s an outright injustice.
Furthermore, cutting benefits to “balance the books” is like paying less than the minimum monthly payment on a credit card bill (because you can’t afford the minimum amount), and then claiming you fixed the problem by lowering your payment.
Failing to meet your financial obligations is not a solution for individual Americans, nor should it be for America’s federal agencies.
Retirees who filed for Social Security benefits early due to the economic impact of COVID-19 added stress to the already-faltering agency. According to Covisium, that could mean an even earlier deadline for the Social Security Administration:
This increase in Social Security claims and reduced income from workers has many experts estimating that the Social Security system will run out of funds as early as 2029. (Emphasis added).
The current Social Security Trustees Report doesn’t factor in this potential disaster because it was issued “pre-COVID.”