Page 30 - Investment Advisor January/February 2022

Cover Story

What to Tell Clients About Their Social Security
Social Security is the bedrock of the benefits across the board in important
American retirement system. Over 65 targeted ways. It would also cut the
million people, or more than one in six long-range shortfall by more than half.”
U.S. residents, collected Social Security The bill begins to address the
benefits in June 2021. And by the end of projected Trust Funds’ shortfall,
2020, nearly 9 out of 10 Americans over states Maria Freese, senior policy
the age of 65 received Social Security expert at the National Committee to
benefits, according to the Social Security Preserve Social Security & Medicare,
Administration. a lobby group. She notes in an email:
For at least 62% of American retir- “According to the Social Security
ees, Social Security is more than half of their income, and for Administration’s chief actuary, H.R. 5723 would slash the
another third, it’s almost all their retirement income, accord- long-range actuarial deficit by one-half, from 3.54% of payroll
ing to Jamie Hopkins, managing partner of wealth solutions at to 1.71%.”
Carson Group. This move also would improve “the percentage of sched-
So what do experts expect will happen in 2022 to either uled benefits that are projected to be payable on a timely
shore up or chip away at this government program? We asked. basis from today’s 78% to 87%. As a result [the bill] will
“Sometimes I get asked, is Social Security going away?” make a significant down payment toward keeping the system
Hopkins told Investment Advisor. “I respond that, ‘Well, if on sound financial footing.”
we’re okay with two-thirds of America’s retirees essentially
not being able to meet any of their basic needs, then we The Downside
could [take] Social Security away.” Not everyone is as optimistic that changes will be made to
The importance, and success, of the program can’t be shore up Social Security.
underestimated, Hopkins continued. “The longer we go with- “The longer they drag their feet the more anxious consum-
out fixing it, the harder it is to fix over time,” he says. “We ers become, the more sensational the headlines get, and the
also start to erode confidence in a system that is arguably the more retirees react to being scared and make poor claiming
most efficient financial instrument ever built, which is a con- decisions,” says Marcia Mantell, who is founder and president
cern when people are like, ‘what could we do instead?’ of Mantell Retirement Consulting. “It is infuriating at this point
“Nobody’s ever come up with a better financial instrument that despite a number of representatives trying to move for-
than Social Security. To this point it runs with a total overhead ward with solid fixes for Social Security (John Larson among
of like 0.5%. There’s nothing as efficient as that on the planet them), there seems to be no appetite to address [them].”
today. That’s as good as it gets.” Nor does Hopkins see the 2100 bill passing [in 2022]. And
Hopkins sees one way to improve Social Security, and that although the system “absolutely” can be fixed, he fears the
is raising the payroll taxes now, which would be about 3.25%. constant debate about it starts “to erode confidence in the
“The challenge of continuously pushing off Social Security system” over time. “I do have this concern that ... people say-
[fixes] every year is it gets harder and harder to fix in the ing, ‘it’s going to go away’ will become a self-fulfilling proph-
future because the amount you’d have to raise taxes is con- ecy, because a lot of 30-year-olds [and younger] are saying,
densed, and the tax rate goes up,” he explains. ‘well I’m not going to have Social Security,’ but no one is sav-
From this tax perspective, it’s pretty straightforward, he ing enough to offset the loss of it.”
says. “But if we wait another 10 years, it will be substantially Freese contends that “Social Security is not ‘going broke.’
higher, and the tax burden will feel even more painful.” Nevertheless, we will no doubt hear more claims to this effect
in 2022, mainly from conservatives who want to cut benefits.
Enter a Sacred Trust We also may hear the trope that ‘no one in Washington has
More optimistic is Nancy Altman, president of Social Security the courage to address Social Security’s funding challenge.’
Works, a lobby group, who said “we anticipate a lot of move- This also is untrue.”
ment on Social Security [in 2022], which will have a major Altman believes the 2100 Act will pass the House this year,
impact on [the program],” she wrote in an email. and “will have a head of steam. Since President Biden ran on
For example, the 2100 Act: A Sacred Trust introduced earlier this issue and the Democratic Party has embraced it, there
this year by Rep. John Larson, D-Conn., who chairs the Social should be momentum for hearings and action in the Senate
Security subcommittee, is “co-sponsored by around 90% of as well. Republican senators will either have to support it or
House Democrats. The 2100 Act would expand Social Security filibuster it, making it a campaign issue in 2022.”

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