Rapid City financial advisor Kahler: No, Social Security is not going broke — and zombies aren’t after your benefits, either

Exaggerated concerns about the viability of Social Security (the public domain image of an SS card above is posted on wikimedia commons) continue to circulate like a persistent urban legend that refuses to die. They have only intensified during the political silly season leading up to the November elections.

I heard some of these warnings from Steve Scalise, the House majority leader, at a fundraiser in Rapid City on June 20. He warned that Social Security will be broke by 2035 if nothing is done.

While I am not always in a position to question politicians’ statements, I can easily separate fact from fiction when they wander into finance. This includes the needlessly alarming “Social Security is going broke” rhetoric that is repeated by politicians of both parties when it serves their purposes.

A July 13, 2024, Wall Street Journal article by Joe Pinsker, titled “Social Security Fears Spur These Young Workers to Save More,” further highlights the fears and misconceptions surrounding Social Security. A 2023 Gallup survey showed that 47% of U.S. non-retirees believe Social Security won’t be able to pay them benefits when they retire. This belief has persisted for over three decades and now troubles a new generation who feel uneasy about their future.

One person quoted in Pinsker’s story is Chris Logue, a 36-year-old property manager from California, who sees Social Security taxes deducted from his paychecks but does not expect to see any benefits himself.

“It’s like paying a very expensive toll on a bridge that’s collapsing before I can cross,” Logue said.

The article also describes a young professional couple from Wisconsin who were unable to find a financial advisor willing to model a retirement without Social Security. They decided to go it alone to “plan like we’re going to get nothing, hope we get something, and then maybe we’ll have enough.” Their investments include mutual funds as well as high-risk speculative assets like gold and cryptocurrency.

I would expect a reputable advisor to explain how Social Security works, develop projections for retirement with no benefits, full benefits, and 75% benefits, and collaborate with clients to develop a strategy that addresses their concerns. Despite the advisor ignorance this couple encountered, their mindset of assuming nothing and hoping for the best is likely to serve them well. However, if they insist on investing in gold and cryptocurrency, they may need to overfund their retirement.

These stories illustrate a significant misunderstanding on the part of both consumers and advisors about the state of Social Security. According to policy analysts, the likelihood that current workers will get nothing from Social Security is practically nil. Andrew Biggs, a former Social Security Administration official, referred to that idea as “zombie apocalypse kind of stuff.”

The truth is that while the trust funds cover only a portion of benefit payouts, the bulk is funded by payroll taxes. Even if the trust funds are depleted, payroll taxes will continue to fund over 75% to 85% of the benefits. Believing Social Security will vanish is akin to believing these taxes will vanish too.

The government has warned for decades that Social Security’s trust funds are on track to be depleted as the U.S. population ages. This is often mistakenly taken to mean the program will go bust. In reality, projections show that even if no changes are made, Social Security could still pay out around 83% of scheduled benefits in 2035.

It is certainly wise to save and plan for your retirement. It’s also important to base your plans on accurate information instead of misleading alarmist rhetoric. Yes, Social Security faces challenges and will need adjustments in coming years. This does not mean zombies are devouring your future benefits.

Rick Kahler, CFP, is a fee-only financial planner and financial therapist with a nationwide practice, Kahler Financial Group, based in Rapid City. His co-authored books include “Coupleship Inc.” and “The Financial Wisdom of Ebenezer Scrooge.”