Will Social Security Really Lose $41 Billion?

When it comes to the Social Security system I am as mystified as anyone. There’s a lot of jabber on the subject yet I have never met anyone entitled to a monthly check who did not get it.

I bring this up because most of those who reach retirement age depend on Social Security for part of their income, along with private pension dollars, dividends, interest, rents, royalties, and work — either part-time or full-time.

How you get income upon retirement greatly influences any decision you might make regarding reverse mortgages. For some individuals a reverse mortgage can be a sensible financial decision, especially if it replaces a mortgage that requires monthly payments for principal and interest with a loan which does not. For others, a reverse mortgage won’t be the right choice.

Social Security

The Social Security system was established in 1935 and from day one had its critics, some of whom had legitimate gripes. For instance, the original program was a benefit for those who reached age 65 but life expectancy in 1930 was 62 for women — and 58 for men. Today, of course, people live a lot longer and millions get benefits.

The latest gripe is that the Social Security system will have a $41 billion shortfall this year. That’s not a good thing for an insurance program if true, but is it true?

Michael Hiltzik, writing in the Los Angeles Times, says the $41 billion shortfall claim is statistical nonsense.

“The old age and disability trust funds,” says Hiltzik, “which hold the system’s surplus, grew in 2009 by $122 billion, to $2.5 trillion. The program paid out $675 billion to 53 million beneficiaries — men, women and children — with administrative costs of 0.9% of expenditures. For all you privatization advocates out there, you’d be lucky to find a retirement and insurance plan of this complexity with an administrative fee less than five or 10 times that ratio.” (See: The myth of the Social Security system’s financial shortfall, August 8, 2010)

But what about the $41 billion?

Hiltzik explains that “this year and next, the program’s costs will exceed its take from the payroll tax and income tax on benefits. That’s an artifact of the recession, and it’s expected to reverse from 2012 through 2014. The difference is covered by the program’s other income source — interest on the Treasury bonds in the Social Security trust fund.

“That brings us back to this supposed $41-billion ’shortfall,’ which exists only if you decide not to count interest due of about $118 billion.”

Figuring out the economics and finances of retirement is difficult. The public should have faith that the Social Security system will be in place when needed — and there should be real numbers to prove it.

When looking at Social Security — or when considering reverse mortgages — just remember the old expression, “nullius in verba” — take nobody’s word for it. Make sure you do your own research and look for the options which work best for you. As a start, speak with fee-only financial planners and attorneys who specialize in elder law.

This entry was posted on Wednesday, August 18th, 2010 at 12:08 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.