Social security is what many rely on for most if not all of their retirement income. With the social security fund rapidly depleting its reserves, there will be a major adjustment to millions of Americans' income within the next few decades. Savvy investors know where there's a crisis, there's also opportunity. Learn how to structure your real estate portfolio to meet this nationwide adjustment in income while protecting your returns and investments.
Status of social security
According to the Social Security Administration (SSA), of the one trillion dollars that were distributed to Americans in 2020, 75% of it went to retired workers plus their dependents, accounting for 33% of their overall income. Nine out of 10 individuals of retirement age or older receive these benefits, and almost half of single retirees rely on social security for 90% or more of their income. Any changes to social security benefits, minor or significant, could result in massive impacts to elderly Americans' lifestyle and housing.
Social security is funded in large part by current workers' continual contributions; in times of high unemployment, less is contributed to the fund. COVID-19 has had obvious impacts on the economy of our nation in a number of ways. In the last recession back in 2008 in the United States, Social Security projected it would run out of money in 2041. But the financial crisis impacted the budget more than they anticipated so they revised their date of insolvency to 2037. Social security has not sent out an annual report that accounts for the impact of COVID-19 yet, but the Bipartisan Policy Center ran the numbers using Social Security’s own financial model. According to their analysis, Social Security is now going to run out of money in 2029.
Social security isn't necessarily going to go bankrupt, but funds will be insolvent to a point, meaning less income will be collected than is being distributed. This will likely result in an increase in required social security taxes by those who are still working and a reduction in benefits to help compensate for the difference in what's collected to what's paid.
How social security insolvency will impact real estate
Depleted social security funds will directly affect demands for various real estate markets, especially with the current silver tsunami. If the potential impacts of social security are not accounted for before inevitable changes to the benefits are enacted, it's probable that you could end up holding real estate investments that have much lower demands than you see right now or miss opportunities to meet rising demand before prices reflect the increase.
It’s unlikely higher-income-earning retirees will be as affected by changes to the benefits, meaning higher-end retirement communities in retirement hot spots like Florida, North Carolina, Colorado, and Oregon will continue to be valued and in demand. Conversely, fixed income or lower-income-earning retirees who already use or depend on subsidized housing or similar residences will feel the pinch from decreased benefits. Those caught in the middle-income bracket will likely see a decrease in their ability to afford smaller private residences and will thus fall into a lower-income housing scenario pushing demand for subsidized or affordable retirement communities up in the coming decades.