The Future of Social Security — Can We Count On It?

Good morning!

For some of us, Social Security may be just around the corner (or already here!). For others (like the teens who read this newsletter), it’s still something like 50 years away.

But with all the negative attention it’s received recently, can we really count on this when trying to plan our future?

Are things destined to become less sustainable over time?

Here we tackle these questions along with recognizing our personal responsibilities to solidify our retirement years.

This weeks’ newsletter includes the following segments:

• What Happened This Week

• The Future of Social Security — Can We Count On It?

• Advance/Decline Ratio

• Launch Your Personal Wealth Expedition!

Here we go!

NEWS
What Happened This Week

• US imports experienced one of the largest one-month drops in the trade deficit in modern US history, as companies front-ran tariffs in March by stocking up from international suppliers, followed by April’s resurgence of domestic orders after tariffs were put in place.

• US inflation is very close to the targeted average of 2%, with the latest headline Personal Consumption Expenditure (PCE) being up in April only 2.1% from a year prior.

• M2 money supply hovers just a hair above where it was in April 2022, suggesting a likelihood that widespread inflation pressure may continue to moderate (all else being equal).

• US job growth continued to slow in May with an addition of 139,000 jobs, but faring slightly better than the expected 130,000.

• The ISM Purchasing Managers Index for May is:

  • Services PMI: 49.9%

  • Manufacturing PMI: 48.5%

• The Conference Board’s Leading Economic Indicator is approaching its “recession signal” zone.

How I See It

A number of warning signs appear to be developing in the market.

While forecasting market movement is never an exact science, there are a few things we can recognize as potential early warning signs.

• Short-term trend remains negative: the S&P 500 50-day moving average is still below the 200-day moving average.

• Purchasing Managers Indexes have dropped below 50 for both manufacturing and services.

• Leading Economic Indicators tracked by the Conference Board are approaching close to recessionary levels.

• The Shiller Price-to-Earnings ratio remains above its average of the past ten years.

There’s no perfect indicator, or combination of indicators, to predict markets.

But the current situation bears attention to the possibility of a bear market developing out of heightened expectation of recession.

Here’s the thing: markets can remain high even in the midst of seemingly conflicting data. It wouldn’t be unprecedented for the S&P 500 to rise 20% or more in a year even amid mixed data.

But the risk right now of a more extended downside, to me, seems uncomfortably like the flip of a coin.

What do I do in situations like this? It depends on the time horizon I have for my goals. If I’ve designed my asset allocation properly from the beginning, I don’t really need to do anything. If I’ve taken on more risk than I should, then it might be time to do some risk management by allocating a greater portion toward assets with lower short-term risk (such as government Treasuries and high-quality corporate bonds).

I’m never all-or-nothing when it comes to investing. There should always be a “what if I’m wrong” strategy to balance things out.

Moderate risk allocations, for example, could look like a 50/50 or 60/40 blend between a diversified selection of stocks and bonds.

Moderate risk allocations, for example, could look like a 50/50 or 60/40 blend between a diversified selection of stocks and bonds.

While this won’t prevent losses in a downturn, its diversity and low correlation are likely to make the downside more moderate than it would be with an all-stock portfolio. And if markets rise from here, this mixed allocation retains the ability to capture a meaningful share of the upside.

“If we command our wealth, we shall be rich and free. If our wealth commands us, we are poor indeed.”

–Edmund Burke

PARADIGM SHIFT
The Future of Social Security — Can We Count On It?

Social Security has come under renewed scrutiny in recent days.

The clear and obvious problem is that future obligations exceed future tax revenue—and the fund for making up that difference is about to run out!

According to the 2024 Annual Report of the Board of Trustees which oversees Social Security, the OASI (Old Age and Survivors Insurance) Trust Fund is estimated to deplete by the year 2035.

And the only lasting way to pay such benefits is through the special tax called FICA, covering Social Security and Medicare.

There are three main avenues for the US to address this upcoming challenge:

1. Higher growth in the economy could increase FICA tax payments.

2. Raising the FICA taxes could increase FICA tax payments.

3. Changing the benefit structure of Social Security could balance incoming taxes with outgoing payments.

What this doesn’t mean, though, is that Social Security simply disappears. There’s little need to worry that it won’t be there at all for future generations. Depleting the trust fund doesn’t stop the tax revenue from continuing to come in.

Absent one of the first two options, the third option means that changes will need to be made to the program.

The Board of Trustees looks at a 75-year projection for Social Security and makes the following conclusions.

🏦 In order for retirees to receive 100% of their stated Social Security from now through the year 2098, the FICA tax revenue would need to increase.

Presently, the FICA tax specifically designated for Social Security is 12.4%. Half is paid by the employer and half by the employee. Self-employed individuals pay the full 12.4%. This tax rate would need to rise by an estimated range of 3.33%-4.02% (depending on the timing), bringing the total to 15.73%-16.42%.

For employees, that would mean an increase in Social Security FICA tax payments from 6.2% to something around 8%.

Considering an average US salary of $60,000, that’s an extra tax of around $1,000 or more.

✂️ If taxes are not increased, the other option is a reduction in benefits.

The estimated benefits for future Social Security payments are about 75.4% of what they would have been in the past. This is part of a larger range depending on many factors, particularly when the issue is addressed seriously and how. This also assumes, as is typical in reform proposals, that current recipients continue receiving promised benefits.

And, though not yet proposed, there could be some sort of a phase-in program of reduced benefits based on age when the change is implemented, to give individuals time to plan and prepare.

There is also the possible choice of simply making retirees wait longer to receive their full promised payment. Perhaps they could still receive 75% of the agreed payment at age 67 but could receive the full amount if they waited to begin payments until age 70.

Of course, the Board also points out that there could be a compromise among these alternatives.

The good news for children born today? A projected stabilization between incoming tax revenue and outgoing payments is projected to happen around 2080.

Now this assumes many things about population growth, improved birth rate, productivity and longevity, but it’s worth noting that things aren’t inevitably doomed to get worse and worse.

Until then, though, we the people will have to shoulder some additional responsibility to make up the difference.

Here are a few things that, in the long-term, have the potential to help:

💰 Save more money (of course)

👨‍👩‍👧‍👦 Encourage a family-oriented culture (improve the birthrate)

🗳️ Elect politicians who are serious about ensuring Social Security’s solvency (not just delaying the inevitable)

📈 Improve worker productivity through such tools as AI (and educate ourselves on the best way to use these new tools)

🔄 Some combination of all four!

In the end, financial literacy and preparation becomes more important now than ever before.

While we can likely count on some Social Security, we will likely need to accept greater responsibility than the past generation when planning for a comfortable retirement when the time comes.

FINANCIAL TOOL
Advance/Decline Ratio

Have you heard of the Magnificent Seven? They are the seven largest drivers of the S&P 500: Apple, Microsoft, Alphabet (Google), Amazon, Nvidia, Meta, Tesla.

Because of the sheer size of these companies, they exert a strong influence over which direction this commonly tracked index goes.

Why?

Because the S&P 500 (like many indexes) is cap-weighted, meaning big companies make up a bigger percentage of the index. These seven, as of May 2025, made up about 35% of the total index.

As a result, the index sometimes goes up because a few big companies are doing well, even if most others are struggling. Like a calm ocean surface that hides underlying currents, this can sometimes mask underlying weaknesses in the economy.

To understand what’s really happening, we use market breadth to check how many stocks are doing well versus poorly.

One simple tool to measure market breadth is the Advance/Decline (A/D) Ratio. It compares the number of stocks going up to those going down each day, week or month:

• If more stocks are going up, it suggests many investors are confident.

• If more stocks are going down, it might mean investors are worried

  (or profit-taking, adjusting based on new information like interest rates, etc.).

The A/D Ratio isn’t enough on its own. It’s one piece of a large and intricate puzzle. Overall economic trends must be observed to get a fuller picture.

As of Friday, June 6, 2025, the monthly A/D Ratio of the S&P 500 was 2.93. That means the number of rising stocks in the S&P 500 over the past month were 2.93 times the number which fell.

Fortunately, it’s well above the threshold of 1 at the moment. That’s a good sign.

As usual, though, there are indicators pulling both directions, but our interest is which direction appears to be winning the tug of war. Presently, momentum appears to be conflicted, and risk of a bear market this year remains uncomfortably moderate (in my opinion).

Key Takeaway: The A/D Ratio helps show if most stocks are rising or falling, better than simply looking at a market index alone. This offers clues about the market’s health. Pairing this knowledge with other forward-looking indicators can help make smarter guesses about where the market is headed.

HERE’S HOW I CAN HELP
Launch Your Personal Wealth Expedition!

Ready to take control of your financial destiny?

Here are the two foundational courses which will set you on course to radically transform the way you live and work.

Budget, Build, Bridge: The Roadmap to Financial Independence

This course will lead you step-by-step toward developing your escape plan into a life of comprehensive wealth: time, flexibility, purpose and money.

Each lesson builds upon the last, covering these main topics:

• Master high-impact budgeting techniques to create a surplus today.

• Develop a plan to become debt-free in record time.

• Raise your salary this year.

• Use tax strategy to fast-track your goals.

• Bridge your way to entrepreneurship.

Advanced Investing for Financial Freedom

Whether you're new to investing or a seasoned expert, this course is designed to make anyone a master of what I believe to be the most important investing concepts.

Here's what you'll learn in this course.

• The foundational concepts for analyzing the risk and performance of mutual funds and ETFs.

• How your goals affect the allocation of your investment portfolio.

• How to fine tune the risk factors in your portfolio to weight the odds of success in your favor.

• How to identify stages of the market cycle and build your portfolio around it.

• How, when and why to hedge against downside risk.

• How this all ties together as one comprehensive wealth expedition from ground zero to financial independence.

With investing, it often takes an understanding of just a handful of concepts to make all the difference in your ability to make tremendous wealth over time.

My goal with this course is to offer you what I see as the most important concepts to successful investing, setting you on course to achieve your dream life well in advance of retirement age using simple but powerful habits of finance.

Daniel Lancaster, CFA

Forwarded this email? Subscribe here.

I’d love to hear from you. Let me know what you’d like to see in upcoming newsletters, articles, or a digital course at Contact Us - The Wealth Expedition.

Follow me on X, Facebook, LinkedIn, or YouTube