Is Social Security a secure investment?

The answer to that question is tricky. But the looming insolvency of the fund could lead to significant changes in payouts for retirees and how much workers are taxed to prop up the fund.

No doubt, we are all tired of the thousands of predictions made by pundits and government eggheads over the past few decades that have said the trust will likely face extinction one day or become a severely reduced version of what it intended to be: to provide solid and reliable income for retired Americans.

But Washington’s failure to address Social Security’s diminishing tax revenues and growing outlays (payments to retired workers) means those predictions are rapidly becoming a reality.

And unfortunately for federal workers, Social Security is one of three planks of your retirement earnings (the other two being your basic annuity and any earnings from Thrift Savings Plan investments).

According to a Congressional Budget Office report released this year, Social Security will need an immediate 4.4 percent increase in payroll taxes to ensure the trust remains somewhat solvent over the next 75 years.

Otherwise, the Social Security fund will be depleted by 2029.

A Social Security income tax hike, of course, would mean a severe reduction in working Americans earnings — and less money to set aside for retirement. Currently, workers’ earnings are taxed 12.4 percent to fulfill their Social Security obligations under law. A 4.4 percent payroll tax increase would push that rate to 16.8, approaching one fifth of income.

Instead of raising the Social Security payroll tax, policymakers could also opt to cut benefits, or implement larger tax increases down the road in addition to cutting benefits.

Whether you are about to retire or planning for retirement, it’s prudent to consider the future of Social Security and its role in your investment/retirement portfolio.

What you earn from Social Security may, in fact, turn to be out far different than your expectations. This could severely impact your projected retirement earnings.

In the past, Social Security was something we could rely on.

We knew how much money we were going to get when we retired and we knew when (and for how long). Unless there is some kind of miracle cure, an unexpected increase in federal revenues, or the wherewithal in Washington to address the fund’s woes, those expectations are no longer reliable.

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