You may be able to insure against a Social Security breakdown


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Editor’s Note: This story originally appeared on SmartAsset.com.

You may be able to take advantage of your pessimism about the health and durability of the Social Security system.

This may be welcome news for young and middle-aged adults who are especially trending down the line regarding the future of Social Security. A 2021 Social Security survey from the Nationwide Retirement Institute found that 71% of people worry that the 86-year-old will run out of funding in their lifetime, while a large percentage of millennials and Gen X-ers think they will get none. Start. He. She.

These growing concerns lie behind one company’s efforts to capitalize on the trend.

Most analysts say that even if the Social Security trust runs out, Congress is unlikely to allow the program to renege on its promises of benefits. Social Security enjoys massive bipartisan support.

However, people remain concerned, especially when the government reminds them that the trust fund for the program has already run out.

Once again, the US Treasury’s annual report sounds the alarm about the financial health of Social Security, predicts that the trust fund for the program will run out in 2033 (instead of 2034, as previously projected) and notes that by 2033, only payroll taxes will be. Covers 76% or so of interest. Such reports add to concerns, especially for the younger cohorts.

What can be done about it?

Cut off Social Security “protection” benefits

Lock on social security cards
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Whether their concerns are justified or not, one premium provider sees a potential market with these numbers.

Anxxx, a large distributor of indexed annuities and indexed universal insurance policies, announced in September that it would add an income disorder rider to its fixed indexed annuities that will pay clients if their Social Security benefits are reduced.

The company, which is co-initiating the initiative with retirement firm PlanGap, a subsidiary of Secure Companies Inc. in Atlanta.

ANXXX plans to announce its insurance and investment bank partners and launch this indexed fixed annuity in the early fourth quarter of 2021.

Play some numbers

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Part of your decision about whether to consider a product like this should reflect some calculation. Take your estimated monthly Social Security benefit and—for the sake of argument—assume that Congress fails to fix a trust fund deficit of 24%, so your monthly benefit is reduced by 24%. Furthermore, assume your retirement lasts 20 years.

Multiply the decrease by 20 (assuming, for simplicity, no COLA adjustments), to get the total amount you failed to receive throughout your retirement due to the trust fund issue.

You’ll need to compare that dollar amount to what you’ll pay in insurance premiums to get Social Security income interruption protection—and also compare it to what you could get with that dollar amount in the stock market.

Here is one hypothetical scenario. A person born in 1970 retires in 2035 at age 65, and expects you to hit $1,800 in monthly Social Security benefits. But Congress didn’t fix that 24% shortfall, so this person’s monthly benefits shrunk by 24% (or $432) to $1,368.

Given that this person has a 20-year retirement, that monthly shortfall of $432 is $103,680. Compare this number with what the company will charge in premiums over a specified period of time.

Finally, consider what those premiums would turn out to be if they were invested in the stock market rather than paid to the company.

bottom line

Old people are happy with money
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Fears of cutting Social Security benefits seem unfounded – for political, not financial, reasons. But these concerns can lead to questionable financial decisions.

Misinterpretation of reports about Social Security trust fund issues may lead some workers to claim benefits early and forgo larger payments later. However, if you like insurance and are drawn to annuities, Annexus may be for you.

Be sure to read the finer details and, in the meantime, develop alternative sources of income so that you are less exposed to the unlikely possibility of a reduction in Social Security benefits.

Tips for planning for retirement

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Retirement planning means coordinating the many moving parts, and it’s something that is best done with a financial advisor.

Finding a qualified financial advisor doesn’t have to be difficult. The free SmartAsset tool matches up to three financial advisors in your area, and you can interview your advisors at no cost to determine which one is right for you. If you’re ready to find a counselor who can help you achieve your financial goals, get started now.

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