This just in from SPL Financial Group...

                                   November 2012 Newsletter

Dear Friends,

Social Security has certainly been a hot topic lately with the election quickly approaching.  As the candidates have acknowledged and many economist have predicted, Social Security will soon come to an end as a viable option for supplementing retirement unless some changes are made. 

The end has already begun…As millions of baby boomers approach retirement, the Social Security program’s cash surplus will continue to shrink, and eventually the program will be unable to pay the full benefits expected by many of today’s retirees.  Eventually, something’s gotta give – either Social Security benefits will have to be slashed, or other government programs will have to be cut to continue to feed Social Security.   

The reason for Social Security's inevitable decline is fairly simple. Demographics are actually quite predicable. The first wave of baby boomers reached early retirement age in 2008. For the next 17 years thereafter, each year we’ll see more baby boomers reach the early retirement threshold of 62 years old.  Since these millions of baby boomers have not produced enough children to take their place in the workforce, the number of taxpaying workers will begin shrinking – faster and faster as more and more people retire. 

This is a problem, since Social Security benefits are actually paid by the taxes of those still in the workforce. As succinctly stated by the Social Security Reform Center*, “the program's finances are based on the relationship between the number of workers paying taxes and the number of retirees receiving benefits.”

When Social Security was first introduced, this wasn’t a problem. In fact, in 1950, at the beginning of the baby boom, each retiree's benefit was divided among 16 workers, with plenty of tax money to go around. Today, that number has dropped to 3.3 workers per retiree, and by 2025, it will reach approximately two workers per each retiree. Essentially, every married couple will have to pay (in addition to their own family's expenses) Social Security benefits for one retiree. As we can see from these scary numbers, in order to pay promised benefits, either taxes in some form must rise, or other government services must be cut. 

This future is quickly approaching. Social Security's cash surpluses have been falling already over the past few years. In fact, over roughly the next 10 years, those Social Security surpluses, about $100 billion a year at their peak, will continue to shrink and then disappear completely.

And then we are in for a whole mess of problems. Somewhere around 2017, on top of replacing Social Security's $100 billion annual surplus, Congress will have to find billions more somewhere so that Social Security can pay the benefits that it has already promised. Within just 5 to 10 years thereafter, the annual demands are expected to reach $200 billion, and then even $300 billion a year.

And of course this is not even counting Medicare. Projections show that together, Social Security and Medicare will consume an estimated 60 percent of income taxes collected by 2040. What's left would have to finance the entire rest of the government and other social programs. Without reform, Social Security's future is inevitable, like it or not.

Anton, Michael, and Thea

*(Source: Social Security Reform Center; www.socialsecurityreform.org)