Retirement and you: Cutting through the Social Security bull

You may be wondering if Social Security will be there when you retire. If you're 20 or 30-something, you've probably already been convinced the money will run out before you ever get there. I believe it's all scare tactics to try and sell a privatization plan that would kill Social Security.

Social Security is a pay as you go system. About 85% of the money you are now paying into Social Security goes directly toward paying people who are now collecting it. The other 15% goes into the Trust Fund. The Trust Fund was almost out of money in the early 1980s, when Alan Greenspan headed a commission to fix Social Security. The commission recommended raising Social Security taxes, which have been in place since then. The raise was intended to build up the Trust Fund so there would be enough for the Baby Boomer generation when it was set to retire.

It's true that in 2017, we'll start drawing down the funds in the Trust Fund, because there will be a large growth spurt in Social Security payments as Baby Boomers start collecting. It's true that right now it's projected those Trust Funds will be used up in 2041, but that date gets adjusted each year depending on actual results of the fund.

Of course, when and if the Fund actually runs dry is largely guess work. Someone born in 1965, when the population explosion finally started to slow after World War II, and generally considered the end of the Baby Boom, would be 76 years old in 2041, which means we'll be nearing the end of the Baby Boom population's retirement phase. Many Baby Boomers will likely be dead by that time. Average life span is about 78 years and experts expect that may even drop because of obesity in the U.S.

If all that's true, and the Baby Boom generation is gone, how much difference will be there be between the working population (who pays into Social Security) and the population collecting Social Security? That's the trillion dollar question and no one can say for sure, but I suspect that the population will be much higher than now predicted as immigration continues to rise in this country even if the U.S. birth rate is low.

Can U.S. companies really work with a significantly smaller workforce than we have today? I have my doubts. Another factor that will affect the financial health of Social Security is the number of people working longer or going back to work after retirement. They pay into Social Security, too.

Is a fix needed? Yes. Is it a major fix? No. Many analysts belief that a 2% correction -- a 1% increase in Social Security taxes and 1% decrease in promised benefits would fix the system for 75 years. How this fix will be structured causes most of the controversy. Will people be expected to work longer before collecting Social Security? Will cost of living increases be lower? There's lots of ways to tweak the fix.

The problem is not with Social Security's structure. The big problem is with how the Trust Fund has been used as a piggy bank by the U.S. Congress and Presidents. Rather than truly invest the money, our government leaders used it as a source of loans to fund general operating expenses. When the bonds that make up the Trust Funds must be repaid, those payments are going to hurt. That starts in 2017. So it's not Social Security that's a bad design, it's how the investments into the Trust Funds were used.

It's clear that we need another bipartisan commission that will come up with a compromise plan to save Social Security and cut through the political bickering. The sooner the better. That's what many of the presidential hopefuls want.

Can we get it? We have to. About 40% of income for most retirees comes from Social Security, and for many it's closer to 100%. As traditional pension systems fade away people will become more dependent on Social Security, not less. Yes we do need to improve the savings habits of U.S. citizens, but we shouldn't do that on the back of the safety net -- Social Security -- with private accounts carved out of funds needed to pay current beneficiaries. It must be done by encouraging additional savings over and above the safety net of Social Security.

Lita Epstein has written more than 20 books including the "Complete Idiot's Guide to Social Security and Medicare."

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