The Social Security Fund Shortfall: Reimagining Your Financial Security (Pt. 2)

We recently discussed the serious challenges that our nation faces to preserve the future longevity and stability of the Social Security fund. We examined the facts surrounding the projected shortfall of revenues that fund Social Security benefits and explained different ideas to resolve this critical problem.

In the second part of our series, we pivot to focus on individual mindsets, encouraging seniors and their financial advisors to think differently about the country's retirement fund.

The message is the following: don't panic about losing benefits entirely - you won’t - and don't confidently assume benefits are permanently secure at their currently projected levels - they aren’t.  Rather, take a dispassionate look at your cash flow needs, then inventory all of your available assets to make sure that each of them is serving its intended purpose in funding your retirement plan.

Possible Threat to Retirement Funding

There is little debate that Social Security’s surplus reserves are on a path to run out sometime around 2033 at the current rates, based on a report from the Social Security Administration. So, if nothing changes in the years to come — a scenario that seems very unlikely — the fund’s reserves will become depleted and benefits will be paid from Social Security tax revenues.

Unfortunately, annual tax income for the Social Security fund is just 77% of scheduled benefits, which means there is a risk that benefits could be reduced by 20% - 25% ten years from now.

“No matter what happens with Social Security, you need a strong and well-documented retirement plan — one that you can maintain and update as your own finances evolve,” advises the NewRetirement blog. “Given a somewhat perilous economic situation, this is more true now than ever before.”

Think Differently About Financial Security

Social Security is a vital income source for millions of American seniors, but of course, it was never intended as a robust pension that would fund a dream retirement.  Therefore, it is advisable to consider the potential implications of a reduced future benefit on your cash flow projections.  Please find below a few proactive steps to consider taking.

1. Scrutinize Spending

Take a close look at your retirement budget, itemizing essential expenses (e.g., housing, utilities and groceries) and discretionary spending. A financial advisor can be especially helpful with determining your current spending levels and identifying areas of opportunity to create more margin in your budget.

2. Diversify Investments

Don’t keep all your eggs in one basket; spread your investments across asset classes to help mitigate the risk of a sudden decline in savings. In this manner, there is flexibility to dial up risk if you want to target higher stock returns or seek more income if you want to target higher bond returns.

3. Explore Additional Income Streams

Social Security should not be your sole income source. Consider a part-time job, if your health permits, or perhaps consulting opportunities in an industry where you have significant knowledge and experience.

4. Review Available Assets

It is likely that you often think of stocks, bonds and real estate as assets that can be sold if liquidity is needed, but there are other “illiquid” items that can be turned into income as well.

Consider selling personal property such as art, antiques, jewelry or cars to generate cash.  And there is one other asset owned by millions of seniors that just might create an income stream to help fund your retirement.

The Life Settlement Solution

If you own a life insurance policy that is no longer needed or affordable to maintain, then it can be sold to a third-party buyer in exchange for a lump sum cash payment with a life settlement.

What is a Life Settlement?

A life settlement is a financial transaction that allows qualified life insurance policy owners to receive payment for selling their coverage to state-licensed financial institutions known as life settlement providers. Similar to selling a home or car, the sale transfers all rights, title and beneficial interest in the asset to the buyer, who assumes responsibility for future premium payments and collects the death benefit when the insured passes away.

A life settlement can provide a much better alternative to lapsing, canceling or surrendering a life insurance policy back to the carrier for minimal or even no cash value. We advise seniors and their financial professionals to contact and engage with an experienced life settlement broker, like Welcome Funds, who will identify the market value of a life insurance policy and is obligated, per applicable law, to act in the best interests of the policy owner throughout the transactional life settlement process.

Conclusion

The goal of the two-part series discussing Social Security is to ignore the political rhetoric and focus on the facts. On one hand, the projected shortfall in the trust fund isn’t immediate, so there is no reason to panic. On the other hand, if the problem is left unaddressed, benefit cuts could occur in the future. It's important to be aware of such possible reductions, the ramifications on both your short and long-term budgets and the value of selling overlooked assets like an unneeded or unwanted life insurance policy for much needed cash during your golden years of retirement.  

For more information on Welcome Funds and life settlements and to receive a free, no-obligation life insurance policy appraisal, please call 1-877-227-4484 or visit www.welcomefunds.com.