Social Security Troubles by David Merkel CFA of The Aleph Blog

We have known for many years that Social Security’s Disability Trust Fund was in far worse  shape than the Retirement Trust Fund, which is also not in good shape.  The rolls for Social Security Disability have risen dramatically since 2009, with many applying for disability amid a time where jobs are hard to find.  Personally, I think that people should plan for their own possible disability, and it not be something that the government covers.

That said, the disability trust fund will run out of money in 2016.  The most likely result in my opinion, is that  the disability trust fund will borrow from the the retirement trust fund, accelerating the insolvency of the retirement trust fund, currently scheduled to make a change to payments in 2026, when it has only one year of payments left in the trust fund, and will have to pro-rate all payments, so that the payments will be made from existing tax payments plus assets on hand.  This means that social security retirement and disability payments will be cut by around 27%.

The politics of this is complicated, and I don’t pretend to have an absolute answer to how this will all work out.  My past dealings with these issues indicate that if the problem can be deferred, it will be deferred.   Borrowing from the retirement trust fund ruffles few feathers, and allows politicians 10 years or so of breathing room, after whichthey may have resigned or retired.

At some point in the future the following phrase will be common: “You got what you deserved, because you trusted the government.”  Add in the troubles at Medicare, where the trust fund also will run out before 2020.

If you are relying on Social Security, you are in a bad spot,  Either taxes will be raised, or benefits will be cut, either across-the-board, or selectively.

This will be a fight, as most other things in our government budget are, and there is no telling how it will turn out.  There is only one certain thing: if we had dealt with this 25-35 years ago, we would not be in this pickle now.  Shame on our parents’ generation, and shame on us, if you are over age 35.  More guilt to those who are older.