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Retirement Weekly: A majority of workers have confidence in Social Security. Should you?

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Workers are surprisingly confident that Social Security will be there for them when they retire.

According to the Retirement Confidence Survey 2022, conducted by the Employee Benefit Research Institute and Greenwald Research, and released this week, 52% of workers are either “somewhat” or “very” confident that the Social Security system “will continue to provide benefits of at least equal value to the benefits received by retirees today?” This is only 1 percentage point below last year’s reading, which was the highest confidence rate in the survey’s 30-year history.

In 1994, in contrast, the comparable percentage was 22%, and in 2014 it was 28%.

The reason it’s surprising that workers’ confidence in Social Security has been trending upward is the drumbeat of scary stories in recent years about the financial viability of the Social Security Trust Fund. In April 2020, for example, the Social Security Board of Trustees projected that the Old-Age and Survivors Insurance and Disability Insurance (OASI and DI) Trust Funds would become depleted in 2035, at which point only 79% of benefits would be payable.

It was just a coincidence that this report came out just a month after the COVID-19 pandemic sent the U.S. economy into the functional equivalent of a medically-induced coma. The Social Security Board of Trustees is required by law to issue a report annually on the financial status of its trust funds. And the assessment contained in their 2020 report was largely unchanged from the 2019 report, and in some respects more optimistic.

But nuance isn’t a universally-adhered-to virtue in the financial media. What draws readers are Chicken-Little-like pronouncements about the sky about to fall. And since the pandemic predisposed many to worry that the world was about to end, alarmist Social Security headlines got lots of clicks. I don’t recall receiving any emails from readers when the 2019 Social Security Trustees report was issued, but was deluged with them in the wake of the 2020 report.

Also relevant are studies showing that alarmist Social Security headlines lead to changes in retiree decisions. Last fall, for example, I reported on research that focused on retirees’ choice of when to begin claiming their Social Security benefits. The researchers found that more alarmist headlines led to an earlier claiming decision, on average.

So it’s a pleasant surprise that more workers weren’t influenced by the last couple years of alarmist headlines into giving up on Social Security

But should we have confidence in Social Security?

The more important question, of course, is not whether workers have confidence in Social Security but whether they should. As I have argued on several prior occasions, I think that confidence is justified—for a couple of reasons.

First, it’s important to put into historical context the projected Social Security Trust Fund depletion date in the 2030s. The timing of this depletion date is hardly news, however. In 1983, after the last time Congress made changes to Social Security’s finances, its actuaries projected that the Social Security trust fund would be able to meet all obligations until the mid-2030s. So we’ve known for four decades that fixes would need to be made before then. There’s no more of a Social Security funding “crisis” now than at any point since the mid-1980s.

Second, it’s helpful to reflect on how long our politicians procrastinated the last time the Social Security system was in danger of running out of money. That earlier depletion date was in July 1983, and Social Security’s actuaries had been aware of that date for many years prior. Yet the Social Security Amendments of 1983—which shored up the system’s financial viability—weren’t passed by Congress and signed into law by then-President Reagan until April 20 of that year. In other words, the system wasn’t fixed until there were less than three months to spare.

It’s a good guess that the politicians will wait just as long (or even longer, if possible) this time around. Given extreme partisanship, it’s difficult to get anything enacted these days. Nevertheless, consultants in both parties say, it’s virtually inconceivable that our political representatives would actually let the Social Security Trust Fund run out of money.

And even if they did, recipients would still receive the bulk of their Social Security benefits. The latest projection from the Social Security actuaries is that when their trust fund becomes unable to pay 100% of the benefits to which recipients are otherwise entitled, it still will be able to pay 76% of those benefits. That’s not great, but a lot better than zero.

Furthermore, Martha Shedden, co-founder and president of the National Association of Registered Social Security Analysts, told me in an interview that even if only three quarters of scheduled benefits get paid, Social Security will still be the primary source of income for many, if not most, retirees. So it’s not clear how your retirement planning would change even if you believed that our politicians would let the Social Security trust fund become unable to pay 100% of benefits.

The bottom line? We face bigger and more pressing retirement financing challenges than what may happen to Social Security’s finances in the decades of the 2030s. In the case of this latest Retirement Confidence survey, at least, the workers’ confidence appears to be justified.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.

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