Wed. Jan 19th, 2022

Take a moment this week to wish a happy 86 on Social Securityth birthday.

His exact birthday is Saturday, August 14th. It was that day in 1935 when then-President Franklin Roosevelt signed Social Security.

To help celebrate this, I dedicate this column to assessing the contribution of Social Security to the financial security of retirement.

I first want to focus on the difference Social Security has in the financial security of the retirement of many seniors. Without Social Security, many of them would not be able to do so financially.

We often miss this worrying fact, as many in the financial realm of retirement pay disproportionate attention to relatively well-to-do retirees. I am as guilty of this as anyone else. When I focus on Weekly retirement column on expected future returns on stocks and bonds, for example, as I did several weeks ago, I implicitly assume that retirees (or close retirees) have amassed enough wealth in order to differentiate the returns of different asset classes in the future.

But this discussion is irrelevant to a disturbing number of retirees and near-retirees. According to Vanguard, for example, 29% of Vanguard 401 (k) accounts have assets of less than $ 10,000. And that’s among those investors who have a 401 (k) in the first place. Many others have nothing.

Needless to say, for retirees and near-retirees in these groups, social security inevitably accounts for most of their retirement income. This proportion will certainly grow in the coming years, but it is already considerable: according to the Social Security Administration, “21% of married couples and approximately 45% of single people depend on Social Security 90% or more of their income ”.

One way to appreciate the importance of these important percentages is what the poverty rate among the elderly would be if Social Security did not exist. According to the Congressional Research Service, the proportion of people over the age of 65 living below the poverty line would rise from 8.9% to 35.8% without Social Security benefits and without other changes.

Crisis is such a widely used word today. But such a high poverty rate would certainly be a crisis of the first magnitude.

Social Security finances

As you know, the Social Security trust fund is expected to run out of money by the mid-2030s. If Congress makes no changes at this time, Social Security recipients would start receiving only about $ 75 cents from the amounts owed to them otherwise.

Perhaps it is inevitable that our politicians will want to postpone as long as possible by making the necessary changes to restore the long-term solvency of the Social Security trust fund. This is what happened the last time this fund was about to run out of money, in 1983. As I wrote before, Congress on that occasion did not make the necessary changes until there were only four months left.

So it’s a good bet that it will be at least another decade before Congress finally makes those changes. But it’s a shame, because the sooner they become less heavy they have to be.

Perhaps the best birthday present we can give Social Security would be to urge our elected representatives to make changes that ensure the solvency of Social Security for decades to come.

Mark Hulbert regularly contributes to MarketWatch. His Hulbert Ratings keeps track of investment bulletins that pay a fixed fee to be audited. You can contact him at [email protected].

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