The Social Security Problem Appears To Be Getting Worse

By now, you've probably seen they nudged up the timetable to 2032 for when Social Security would presumably need to start cutting payouts by what the Washington Post says would be 22%. Here's the Barron's report on this story. 

There are plenty of ideas floating out there including raising the full retirement age, lifting the income cap (for 2026, once income gets to $184,000 there is no more payroll tax due), reducing the annual COLA bump, means testing (cutting/reducing it for "rich" people) and even investing it in the stock market.

As a legal matter, they simply cannot pull the money from somewhere else to plug the hole. Apparently the last time they made changes in 1983 they did so just in the nick of time which argues that sitting here in 2026 is too soon to worry about it. To adopt that position is to give Congress the benefit of the doubt and while I am sure they will do something, I don't know about giving them the benefit of the doubt on anything. My point being that waiting until the last minute increases the odds that whatever they do is "unfair" to more people than it would otherwise need to be. 

There's a cliche about a negotiation being good when no one thinks they got a great deal, they got something they wanted but not everything. I would suggest being mentally prepared for feeling a little worse than that when this all shakes out. 

Related, this year's Social Security COLA is now estimated to be 4.7% after this morning's inflation data. Someone planning to take Social Security in 2031 and thinking they will get $4000 in today dollars would get $4866 in 2031. If they have to take a 22% haircut from $4866, they'd be down to $3795. Put yourself in that position with your numbers. As it stands right now, would that much of a drop be a problem? I'm not being critical at all. If that drop is a problem, you've got time to figure something out. Then, all the better if they somehow fix it. 

And a quick follow up, with the recent leg down in Bitcoin, I wanted to check in on the Vistashares Bitbonds 5 Years Enhanced Weekly Distribution ETF (BTYB). The basic idea is that fund seeks to pay out twice whatever the five treasury is paying by harnessing Bitcoin volatility via a synthetic covered call. 

UFIV tracks the five year treasury and YBTC is a Bitcoin covered call fund. In the period charted, BTYB has paid out a total of $0.187 so add 75 basis points back into the decline of 5.5% as of Tuesday's close.

BTYB is down less than I would have expected in the face of how much Bitcoin has fallen. What has probably gone on is that as the price of Bitcoin has fallen, the volatility has gone up which results in the option combo that creates the synthetic covered call going down slower than underlying Bitcoin. The fancy term is gamma. BTYB benefitted from positive gamma. If Bitcoin had gone down in such a way that volatility compressed then BTYB would have probably fared worse.

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.