Impact on Social Security: Russia’s Invasion of Ukraine

Russia’s invasion into Ukraine will have an impact on social security. I have over 30 years in this business and I want to share with you conversations I have with my clients, so you can be better off as you pursue your retirement.

2 Impacts: Financial Markets and Social Security

What is happening in Ukraine is devastating, horrific atrocities, images that you just can’t unsee. I don’t want to dismiss that or diminish it. I want to focus more on the financial impacts here and world wide of Russia’s invasion of Ukraine. The two areas I want to focus on will be the financial markets and the Social Security system because I believe that there will be a significant impact as a result of what is happening worldwide.

Impact on Financial Markets

From a financial perspective, there are a number of areas that have been hit hard. This region exports a significant amount of the grain, barley and wheat the world needs. It will have a significant impact on the fight against hunger and on food supplies worldwide. There is the price of energy, oil and gas, as we’ve all seen the prices at the pump. This will translate into higher cost of goods and higher cost of shipping, which will then be passed along to all of us in the form of higher prices. Add to this what we’ve already been experiencing with the global supply chain issues. What you are seeing is an inflationary trajectory that we haven’t seen in 40 years. Some believe that this inflation pegged around 8% is transitory, but many others believe that there are a number of areas within the inflationary picture that are here to stay. So what does this mean? From a stock market perspective, the market pretty much, if you will, moved on. If you want to learn more about it and some historical perspective on markets and wars, take a look at this video we recently did.

Impact on Social Security

So let’s take a look at social security and the potential impact on the entire system as a result of this conflict. Now, there is some good news here. With the higher inflation, those who are receiving Social Security checks got a cost of living increase last year. That was one of the highest in about 40 years, pegged at about a 5.9% increase for 2022. It‘s projected that the cost of living increase could potentially be even higher for 2023. So what’s the bad news? Let me share with you my screen. One of the big questions we’ve all been asking is, will Social Security be there for me? So let’s take a look at some numbers. According to a recent Social Security Administration Trust Fund report, at the end of 2019, there was approximately $2.897 trillion in the fund by the end of 2020. That was just about the same amount of money or just a hair more. The assumption that the trustees are making here is the cost of living increase will be approximately 2.6% per year. With that assumption, what you can see here based on the most recent reports is it looks like that fund, somewhere around 2034 and beyond, will be unable. Assuming there is no change, choose to continue to pay out 100% of the benefits that they have guaranteed.

Inflation Impact on Social Security

So think about what’s happening right now, inflation is much higher than the 2.6%. Assuming that inflation does stay higher, I’m not going to tell you it’s going to be at 8% but it could be a sustainable number at 4 or 5%. Then it will have a significant impact on Social Security’s liquidity and their ability to continue to pay out the amount that they guarantee and that could impact you sooner than later. Stay tuned to this channel for more information as we learn more.