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You May Soon Be Able to Insure Against Social Security Going Bust – But Should You?


You may be able to profit off your pessimism about the health and durability of Social Security.

That may be welcome news for young and middle-age adults who are particularly bearish about the future of Social Security. The Nationwide Retirement Institute’s 2021 Social Security Survey found that 71% of people worry the 86-year-old program will run out of funding in their lifetimes, while a considerable percentage of millennials and Gen X-ers believe they’ll never get anything from it. Such growing worries lie behind one company’s effort to capitalize on the trend. Consider working with a financial advisor as you plan for your retirement.

Most analysts say even if the Social Security trust fund runs dry, it’s highly unlikely that Congress would let the program renege on its benefit promises. Social Security enjoys massive bipartisan support.

Still, people worry, especially when the government reminds them that the program’s trust fund is indeed running dry. Once again, the U.S. Treasury’s annual report is sounding the alarm about the financial health of Social Security, projecting that the program’s trust fund will run out in 2033 (rather than 2034, as it previously projected) and noting that by 2033 payroll taxes will only cover 76% or so of benefits.  Such reports ratchet up fears, especially for younger cohorts.

Social Security Benefit Cut ‘Protection’

Senior woman checking her Social Security benefitWhether their worries are warranted or not, one annuity provider sees a potential market in those numbers. Annexus, a large distributor of fixed indexed annuities and indexed universal life insurance policies, announced in September it will add an income-disruption rider to its fixed indexed annuities that will pay clients if their Social Security benefit is reduced.

“The newly released 2021 Social Security Trustees Report highlights the dire condition of the Social Security Trust Fund and the need for a better solution as funds continue to deteriorate,” said the company, which is partnering on the initiative with retirement firm PlanGap, an affiliate of The Secure Companies Inc. of Atlanta.

Annexus plans to announce insurance carrier and investment bank partners and launch this fixed indexed annuity in early fourth quarter 2021.

Run Some Numbers

Part of your decision about whether to consider a product like this should reflect a few calculations. Take your estimated monthly Social Security benefit and – for the sake of argument – assume Congress failed to fix a 24% trust fund shortfall so your monthly benefit shrinks by 24%. Further, assume your retirement lasts 20 years. Multiply the shortfall by 20 (assuming, for the sake of simplicity, no COLA adjustments), to get the total amount you failed to receive throughout your retirement because of the trust fund problem. You would need to compare that dollar amount to whatever you would pay in premiums to get Social Security income disruption protection – and also compare it to what that dollar amount could get you in the stock market.

Here’s one hypothetical scenario. A person born in 1970 retires in 2035 at age 65, with expectations of $1,800 in monthly Social Security benefits. But Congress doesn’t fix that 24% shortfall so this person’s monthly benefits shrink by 24% or $432 to $1,368. Given that this person has a 20-year retirement, that monthly $432 shortfall totals $103,680. Compare that number to what the company would charge in premiums over a set time period. Finally, consider what those premiums would turn into if they were invested in the stock market instead of being paid to the company.

The Bottom Line

"WHAT'S YOUR PLAN FOR RETIREMENT?"Fears of a Social Security benefit reduction appear to be unfounded – for political rather than financial reasons. But those fears can lead to questionable financial  decisions. Misinterpreting news of Social Security trust fund troubles could lead some workers to claim benefits early and forfeit larger payments later. Still, if you’d like insurance and are attracted to annuities, the Annexus product may be for you. Be sure to read the fine print and – in the mean time – work to develop alternate income streams so you will be less vulnerable to the unlikely possibility of a Social Security benefit reduction.

Tips on Retirement Planning

  • Planning for retirement means coordinating many moving parts, something that is best done with a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • One of the handiest tools for retirement is a free retirement calculator.

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