Dialing In A Notch On Social Security

written by:

Stephanie Smith
Client Services Specialist

One Question...

One question that seems to come up at each Social Security workshop we host is, “Will Social Security be around when I want to retire?”

I can actually give my personal opinion on the matter now that I am no longer a government employee, but instead, a retiree.  My honest answer is yes! I believe Social Security will be around for future generations.  I believe in the program and its purpose.  I am passionate about educating our clients on Social Security issues.  Our team at GenWealth Financial Advisors knows that Social Security is an integral part of our clients’ financial plans.

Ok, let’s dig a little deeper.  Why do I think it will be around for future generations?

To get to the future, let’s take a look into the past. The Social Security Act was set up on August 14, 1935 by President Roosevelt as one means to build up the nation after the Great Depression.  By the year 1977, just 42 years after enactment, Congress realized that the benefit calculations needed altering.  The cost of living adjustment for retirees was rising faster than the rate of inflation thus depleting the trust fund faster. So, a different computation was applied to beneficiaries born between 1917 and 1921.  Those born between 1917 and 1921 fall into what is called the “Notch” Provision. 

I can remember being 21 years old, and the first question my grandfather asked me when I started working for Social Security was why his benefit amount was less than my great uncle’s benefit was.  It didn’t take me too long to get educated on this Notch Provision!  My grandfather had no control of being born in 1917 while my great uncle was born in 1914. You see, my great uncle experienced a windfall from Social Security that my grandfather did not since the benefits for many people born between 1910 and 1916 were calculated using a flawed benefit formula.

There have been other adjustments in more recent times, but let’s skip to why I think the Social Security Program will be around for future generations.  According to a Social Security Press Release dated April 22, 2019, the trust fund gained a year of solvency and doesn’t plan to be depleted until 2035.  Most people skip reading at that point thinking that the government will be broke, and the deposits would stop.  Projections for 2035 mean that there will be 80 % of the benefits still payable at that time, not ZERO.  The Press Release states that “there would be sufficient income coming in to pay 80 percent of scheduled payments”. 

By enacting small changes now, the government could keep Social Security solvent further than 2035. What are some of the possible changes? Raising the full retirement age is the most thought of answer. Increasing the amount of income subject to payroll taxes is another possibility. Raising the amount of FICA tax coming out of wages and self-employment income could be considered.  No matter what action Congress decides to take or how close to the depletion date they run, I believe action will be taken.  With 1 in 6 Americans currently receiving Social Security benefits, there is a lot of voting power!

Congress does not want the backlash from 61 million beneficiaries served by the Social Security program.  Most of the general public does not realize that during recent government shutdowns, the Social Security Administration was deemed “essential” and required to operate and fulfill most of its typical duties.  It would not guarantee a paycheck to its employees, but it did require them to remain open to the public.  Thankfully when the shut down ended, employees were given their pay, but it was delayed. 

I realize that no one enjoys paying taxes.  But after working with Social Security as long as I did, I do not resent the FICA tax coming out of my paycheck.  I understand that my current taxes are helping to fund my father’s current benefit and to keep the program solvent for my own benefits as well as my daughter’s benefits in the future.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

 

References:

https://www.ssa.gov/pubs/EN-05-10042.pdf

https://www.ssa.gov/news/newsletter/archive.html#2019

https://blog.ssa.gov/wp-content/uploads/2016/11/infograph.png

Leave a Reply