Social Security is Dipping Into Its Reserves Faster Due to Coronavirus
Updated: Sep 30
For the past few decades, people have been living longer than what Social Security was designed to pay out for. Millions of new retirees are joining the ranks of Social Security benefits recipients, now and in the coming decades.
In time, the out flowing payments to Social Security beneficiaries will start exceeding what Social Security has in reserves. The Social Security Administration will then have a decision to make.
It will have to rely more on the inflows from payroll taxes (and possibly other funding measures) in order to keep up its promised benefits payments to future generations of retirees.
Before the pandemic crisis, Social Security was looking at its reserves being depleted by roughly 2035. But now, over 20 million people have lost their jobs as a result of the spread of the coronavirus.
That is 10% of the U.S. workforce. Payroll taxes that would be pouring into the U.S. Treasury from everyone's paychecks have lessened considerably. As a result, Social Security has been dipping further into its reserve funds in order to keep up its promises to retirees and other benefits recipients.
What Has Changed with Social Security?
Teresa Ghilarducci is a leading retirement researcher and authority. She thinks the timetable for Social Security depleting its reserves has moved up a little.
Based on her estimates, the date may have moved up 2 years. That means that we have 13 years left until the Social Security system is depleted.
The financial meltdown of 2008 caused over 5% of all retirees aged 62 and up to start claiming benefits early. Why? Because they had lost their jobs and had no other meaningful source of income.
History could repeat itself in the near future. In turn, that would be responsible for the reduction of time until Social Security runs out of reserves.
However, this isn't a reason to panic. Beneficiaries will continue receiving their Social Security benefits payments, just as Social Security has done for decades. Even if the reserves were depleted, it would still maintain payments to beneficiaries. However, the amount of monthly income they would receive might be reduced.
Take Control of Your Retirement
Of course, it's also good to be prudent. If you aren't working with an experienced financial professional who understands retirement, there are upsides to seeking someone out right now.
These are unprecedented times, and we are in uncharted waters. The guidance of someone who has been through some market cycles and has assisted many other people can help you have more peace of mind.
Also, keep in mind that you can't take back many retirement decisions once you have made them. What we do or don't do in the present might have an impact on the future for years to come.
With a financial advisor or agent's help, you can discover how to become more retirement-ready: having a rock-solid plan for how you will be financially secure and confident, even in unpredictable times.
You wouldn't have to depend as much on Social Security and other things outside of your control for your retirement income.
Your Money Needs to Work for You
It's taken many years of hard work to reach this point. Now, or when you are ready, you can start exploring the ways that your money can go to work for you.
This starts with answering these questions. How can you deploy your money so that:
You know whether you need to protect your money now so you can have a comfortable retirement?
You have enough income each month to enjoy your retirement lifestyle?
You have a plan that once you are retired, you have the choice to stay retired for good?
You can live your retirement life on your own terms?
A financial professional can help you cover these important questions and make the most of your money for your golden years. Don't be afraid - take action and be confident!
Good days are ahead. We just have to take the necessary steps to reach them now.
Bolstering Your Retirement Income
Perhaps the first step that you can take is to consider putting some of your money into an annuity. Annuities are the only instrument in the marketplace today that can pay you a guaranteed stream of income that will last for as long as you live.
You will continue receiving income even if you deplete the entire value of your annuity contract before you die.
A Quick Rundown on Fixed Annuities
There are three primary types of deferred annuities: fixed, fixed index, and variable. Fixed annuities pay a guaranteed rate of interest for a set period of time, such as 5 to 7 years.
Then the interest rate resets based on the current interest rate environment at that time. Fixed annuities typically pay higher interest rates than other types of guaranteed instruments such as Treasury securities, savings bonds, and CDs.
What Do Fixed Index Annuities Do?
The interest that they pay is based on the performance of an underlying financial benchmark that they are tied to, such as the Standard & Poor's 500 Price Index.
When the benchmark rises, then the insurance carrier will credit the contract with a proportionate amount of interest. If the benchmark falls in value, then the annuity owner won’t lose anything.
Their contract will simply stay at its current level. Indexed annuities have crediting periods that can be as short as monthly or as long as biannually.
Once interest has been credited to the contract for a given crediting period, the annuity owner can’t lose that money no matter what the markets do next.
It's not what you earn that really matters; it's what you keep that counts. And fixed index annuities are ideal instruments in this respect.
What Does a Variable Annuity Involve?
Variable annuities are the primary type of annuity where it’s possible for you to lose money. This is because the money that goes into a variable contract is invested in mutual fund subaccounts that invest directly in the stock, bond, and real estate markets.
When these markets decline, the contract owner can lose money if the subaccount values fall below the initial purchase amount. But variable annuities can also provide the highest level of growth during bull markets, because 100% of the growth is credited to the subaccounts.
In contrast, fixed index annuities will only receive a portion of the index growth because of their relative safety.
No matter what, all of these types of annuities can provide you a guaranteed income, month after month, like clockwork. In that regard, they are a powerful antidote to the retirement income puzzle.
Create Your Own 'Personal Pension' for Income
Annuities are unique vehicles that offer many benefits to those looking for a new alternative for their money. Their unique assurances of guaranteed income are an excellent supplement to Social Security.
Ask a financial advisor for more information on annuities and how they can help bolster your retirement income alongside your Social Security benefits. What if you don't have a financial professional to guide you? Or if you are looking for a second opinion of your financial situation?
For your convenience, answers are just a click away at JenniferLangFinancialServices.com.
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