"Social Security"

We’ve  been hearing about potential cuts to Social Security for years. But it’s always been many, many years in the future and we always assumed Congress would fix it at some point.

Well a recent report by the Congressional Budget Office puts that date within the next 10 years and a recent report from the Committee for a Responsible Federal Budget, a non-partisan think tank has quantified what that may mean for Social Security Benefits in 2033 if no action is taken. I recently spoke with Marc Goldwein, Senior Policy Director for the Committee for a Responsible Federal Budget about what this means.

First it’s important to understand how the Social Security Trust fund differs from other fiscal issues like the deficit ceiling and yearly budget that come up so often. The trust fund was designed by President Rosevelt to be self funded to provide Social Security benefits and be immune from the budget appropriations process or impacted by the debt ceiling.

Unfortunately the trust fund is projected to be depleted in 2033. At this point current law requires benefits to be cut, and it is projected that benefits will be cut 23%. That’s $17,400 for the average American couple!

It seems like we hear about congressional showdowns such as deficit ceiling deadlines all the time. Congress always just waits to the last minute and then raises the ceiling. So how is this any different?

It’s different because current law mandates that the Social Security Trust Fund can only spend from current income once the reserves are depleted. We have been spending down the trust reserve for decades and it is projected to be depleted in 2033, at which time it is projected that benefits will need to be cut by 23% to equal incoming revenue. Source: Committee for a Responsible Federal Budget, August 8, 2023. (add screen disclosure)

10 years seems like a long time.  There are many possible solutions including raising taxes, increasing the retirement age, getting rid of Cost-of-living increases amongst others. None of these are popular or easy solutions. We suspect Congress continues to ignore and push the issue down the road. We think our future congressional leaders will be faced with uncomfortable decisions.

What do we think? Congress’s default may be to change the Social Security funding law, borrowing to cover the trust fund deficit and kicking the can further down the road. While this solution could prevent any cuts in Social Security at that time it only adds to the already increasing Federal Government Debt.

10 years is a long way from today. But as wealth planners that is how we think. Long term, looking out for pitfalls. We can’t solve the issue, but we want to let you know we are keeping our eye on this and any implications for our clients.

Wells Fargo Advisors Financial Network is not a legal or tax advisor. 

Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. Pharos Financial Advisors is a separate entity from WFAFN.