The pandemic has brought to light many questions, one which might be it’s impact on Social Security, and if you’re currently planning for retirement should you perhaps consider changing your Social Security filling strategy. In most cases, sticking with you original strategy is likely still the answer.

The questionable health of the Social Security program is nothing new as most are aware that the annual costs of the program are expected to exceed total income for the program in the near future.

In an April 2020 release, the social security administration referenced that the the program can sustain full benefits until 2034, an number unchanged since last years (2019) analysis. After that time the program is estimating to be able to pay 79% of the program costs, declining to 73% for 2094*.

This analysis likely came before accounting for the impact of the pandemic, which job loss and reduction in hours has undoubtedly resulted in a decrease of funding/income to the program. As a reminder social security is funded through payroll taxes.

An article in the Wall Street Journal, reminded it’s readers that “chances are that the pandemic will have some effect on Social Security’s finances. But then… the program is all but certain to change regardless of Covid-19.” (Gleen Ruffenach, 2020, The Wall Street Journal, Don’t Rush Into Social Security).

Over the years these changes have included discussions of rising the retirement age in which one can begin to claim benefits, raising the payroll tax, and changing the taxability of social security benefits for those currently receiving them, among others. Historically when changes have been made to the program they are often made to impact individuals who have yet to start taking benefits (ie the younger generation). If the presumed election results hold, “Biden’s campaign plans for Social Security included expanded benefits and more payroll taxes that fund the program for high earners” (Lorie Konish, Nov 12 2020, CNBC, Biden’s platform calls for big changes to Social Security. Here’s what could be on the table).

Haven’t filed yet?

We stand in that sticking to your original strategy is likely best, and in general for a couple one of you delaying/waiting to claim your social security benefit until 70 can be a good idea (each year you delay claiming Social Security can result in an 8% increase to your annual benefit amount). Of course, your Social Security strategy should be considered in light of your overall retirement goals, income and circumstances, and what strategy is best for you may differ from the above.

What does this mean for your retirement plan?

When it comes to planning for retirement, we often err on taking a more conservative approach in your plan assumptions, while incorporating the information you know today. Things like longevity, market returns, inflation, taxes and some may argue social security require making an assumption. It’s impossible to know what the future holds, so building flexibility into your retirement plan can be key to a successful retirement. Whether you decide to incorporate some form of a reduction in your social security benefit or build flexibility into your projected expenses, knowing what a change in Social Security benefits might mean for your plan can go a long way in helping you have more confidence in your retirement.

Let us know if we can help.

*Social Security Administration. April 2020. Summary: Actuarial Status of the Social Security Trust Funds. https://www.ssa.gov/policy/trust-funds-summary.html