Good and (Mostly) Bad News about Social Security

Per the Wall Street Journal (subscription required) and a report from the trustees of Social Security and Medicare, expenses related to Social Security are projected to increase beyond its income level in the year 2020. What's that mean? Well, in short: it ain't good.

It may be useful to think of this problem in terms of personal finance and budgeting. If you spend more than you earn, you could be in trouble. You've got to do something to make up that gap — typically you have to take on debt or dip into savings. It appears the Social Security Administration will have to do the latter. The relative "good" news is two-fold but admittedly not all that rosy.

1. There is a pot of savings eligible to be dipped into. Currently, Social Security's trust fund holds nearly $3 trillion in assets. That is to say; there's money available to offset the shortcoming—at least for the short-term.
2. Previously it was expected that expenses would surpass income as early as 2018. So to some extent, we've "bought" some time. The 2020 projection is an improvement.

So what's delayed the transition to negative cash flows? The primary driver has been a strong economy. More people working, making strong wages and contributing to the pot of Social Security helps. Period. But unemployment this low and continued wage growth can't last forever. In fact, the current projection is that Social Security's trust fund could dry up by the year 2034.

Practically speaking, what's that mean for you? Without getting too specific on a recommendation, we'll simply offer two tidbits of advice:

1. Don't depend solely on Social Security benefits for your retirement.
2. Save money elsewhere — be it in a 401k, IRA or standard savings/investment account.