Social Security Trust Fund Status
Depending on what report you read, the Social Security Disability Income Trust Fund (the “Fund”) is fine and expected to pay full benefits until 2096 bolstered by improved economics in the Fund and a reduced number of applicants. The regular Social Security Fund is projected to maintain its surplus funds until 2034 (though will still continue to pay benefits but limited to what it receives in tax revenue). The counterargument to that viewpoint is that people are living longer and the birthrate in the US has declined, meaning that an increasing number of people will Social Security benefits supported by fewer workers contributing to the Fund.
When the new Congress is seated in January, the ever-present debate on what to do with Social Security will continue. Regardless of the party in charge, some form of change or amendment seems likely. In the past we have seen increases in payroll taxes and a regular increase in the wage cap for Social Security taxes aimed at preserving the Fund.
The Social Security Board of Trustees has stated the problem could be fixed with an increase in payroll tax up from the current 12.4% to 14.4%, or an immediate 13% reduction in benefits. Those changes or some combination of them would allow full benefit payment for the next 75 years. Given there will be fewer workers in the future to support larger numbers of beneficiaries, it does seem possible that a reduction in benefits or further age adjustments will be contemplated. Other studies have suggested a flat payment rate, adjusting full retirement age to track with increasing life expectancy and reducing benefits for high-income earners.
Structured Settlements & Retirement
An often-overlooked aspect of structured settlement annuities is the ability to defer the starting date of the payments but still provide a guaranteed payout that will not change with market fluctuations. Combined with the ability to pay for life, this is an ideal way to hedge a person’s retirement income without worrying about reductions in benefits in other programs or erosion due to increasing taxes. We often provide payout options that include starting dates at age 65 or 70, or to coincide with a younger spouse or partner’s retirement age. The deferral of the start date allows the funds to grow and provide substantial supplemental retirement income.
Structured settlements are at their core a way to provide peace of mind and financial dignity. This is true whether the payments start now or in the future.
By John McCulloch | Structured Settlement Consultant, Vice Chairman
John holds an MBA from the University of Phoenix, a JD from Kaplan University, and a BA in Business from St. Martin’s College. In addition, he has completed graduate studies in Electronic Commerce at the University of San Diego and holds the following professional designations: CSSC, FLMI, WCLS, AIAA, ACS, and CMSS™, as well as an accounting certification from the Department of Defense. His formal insurance training includes casualty, property, fidelity and Workers’ Compensation claims, as well as Life and Health underwriting.
