Last week I hit the road to conduct retirement planning sessions for a couple of mid-sized companies up in New England, and many of the attendees had some serious concerns about the future of Social Security. I heard younger workers complaining that Social Security is a Ponzi scheme and older workers expressing their confidence that any fixes to Social Security probably won’t hurt their own benefits since past changes have been gradually phased in over time. Not surprisingly, many of the misconceptions that were being voiced to me are on the list of The Top Ten Myths About Social Security by Morningstar columnist Mark Miller.
Certainly, there is some truth to what drives the concerns of many workers about the future of Social Security. It is a reality that there is a long-term financial challenge that lies ahead, and the Social Security Board of Trustees is now projecting that the Trust Fund will be exhausted in 2033. Because of this looming estimate, many workers fear Social Security will go bankrupt and they won’t see a dime from Social Security. This is the #1 myth since Social Security will still have income from tax revenue and interest (the trust fund took in $805 billion last year alone) and even once this surplus is gone there will still be enough coming in to pay about 75% of scheduled benefits.
I actually find myself falling for myth #5, which is that we should raise the retirement age because we are all living much longer. While it is true that average life expectancy has increased overall, it hasn’t increased for everyone. For example, over the past 30 years, men in the top half of the income distribution have seen an increase in longevity past 65 of 5 years while lower income men had a gain of only a little over a year and lower income women actually had a decrease. Dr. Paul Krugman, a Nobel prize winning economist, points out that the group that has not seen much of an increase in longevity are primarily those in physical labor jobs, who would be the most burdened by an increase to the retirement age.
What can you do to help cut through the confusion of these myths? Make sure to include education about Social Security as part of your retirement plan communications. Your employer-sponsored pension (if you still are lucky enough to have one) and your 401(k) are just a few of the pieces of the puzzle that your workforce will need to be able to put together once they retire. With Social Security replacing about 41% of the average worker’s pre-retirement income, give them access to the facts about a key component of their retirement planning.
Thank you for calling attention to the wonderful piece on Morningstar from Mr. Miller. We agree that many of the myths he discussed in that piece have become ingrained into public perception of Social Security, and we believe there are many people who will be surprised to learn how much misinformation about the program they previously accepted as fact. It is important that we all have a better understanding of the realities of Social Security before we can hope to correct any problems it might face.