What if Social Security goes bankrupt?


When the Social Security Act started in 1935, many didn’t expect that people would be living longer and drawing on Social Security for longer and longer periods of time. What you’ve heard about Social Security is absolutely true. There is no money in social security. In 1965, Lyndon B. Johnson put the Social Security fund into the General Trust fund, so there hasn’t been money in there for over 45 years. But what happens if the tax liability becomes so great that the government cannot afford to pay the Social Security that’s in the general fund?

Planning for retirement is important as you get money working for that successful company, knowing that you want to plan ahead. Even if Social Security doesn’t go bankrupt, you know it won’t cover everything. You want to be able to live in old age just as you lived while you were working, and that’s where the right annuity comes into play. But as your pension is ready for you and you approach retirement, how do you know if it’s right for you?

The first thing you should do is ask for a guarantee period. Simply put, the guarantee period is a minimum amount of time that the annuity will pay you. If you don’t have it, say that you are earning $3,000 a month, but you pass away after a year. All the other money that was in your pension is lost. Now say that you’re earning that $3,000 a month and it’s got a 10 year guarantee period. Even if you pass away after three years, your heirs will still receive the money for the balance of the guarantee period, which is seven more years. If the finance company you talk to doesn’t offer a guarantee period, shop around to find a company that will do this. Often it will have little or no impact on how much money you’ll get.

Another idea is to ask about an increasing annuity instead of a level annuity. With a level annuity, your purchasing power is not adjusted for inflation. Literally you get the same amount every year, regardless of how much inflation goes up. If you were earning $2,000 a month in 2000, it would still be $2,000 a month in 2010, and that means you can’t buy as much as you want. An increasing annuity initially will start out with a lower amount but it will pay you, either increasing by a percentage or increasing for inflation every year to help offset the costs of the inflation. You’ll still be able to buy the things you want, and the longer you draw from the annuity for, the more money it will be worth to you.

Thirdly, if you have health problems, ask for an enhanced or an impaired life annuity, depending on the severity of the health crisis, you could actually qualify for more money with the enhanced or impaired life annuity. It all depends on your health situation and how serious it is. Of course, you’d rather have a long healthy annuity, but if your habits aren’t all that good, then these are something to look into.

Another thing to look into is called a postcode annuity. Be sure to only ask about this before making any decisions. A postcode annuity takes into account the region in which you live, and either increases or decreases the annuity based on it. The idea here is that poorer neighborhoods have a lower quality of living and therefore, it will give you more money based on this.

Lastly, if you have a spouse or a dependent child that’s having trouble working, look into what’s called a joint annuity. A single life annuity only pays for you, but a joint life may pay for you and that other person in your life. Usually the joint life will pay the dependent 1/2, 2/3 or the full value of the annuity. A joint life annuity pays less than a single life annuity, however, so if your spouse has a good source of income, you may not need this.

In conclusion, what happens if Social Security does go bankrupt? It won’t matter to you, because you’ll have the right annuity to give you monthly income and you won’t have to worry about the few hundred measly bucks that Social Security would have paid you. Why reel in a minnow when you’ve got a big halibut in your annuity that will keep you funded for life and you’ll never have to worry about it running out of money?

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

Email  • Google + • Twitter

Comments are closed.