Social Security: Will I Get It?

Speaker 1 (00:00):

Have you ever wondered if you will get Social Security benefits at all? Will Social Security be there for you or will it go bankrupt? This is something that many people are worried about in America today, especially those getting close to retirement and younger workers as well. And today we're gonna dig in and see if you can actually count on receiving Social Security benefits, or if you should not, welcome everyone. I'm Joe Allaria. This is the Retirement Power Hour, and this is episode 26. And today, as I mentioned, we're gonna be talking about are you going to get social security benefits? And the reason that I'm asking this question is many people are worried about the social security system and if they can even count on benefits for the future, a lot of younger workers aren't counting on benefits at all, and older workers are concerned will they get their full benefit?

Speaker 1 (00:51):

They may be trying to make retirement decisions. There may be some retirees who are worried that they could see a cut in benefits in coming years. So we're gonna touch on that today. But first I wanna remind you, if you have not done so, go to retirement power hour podcast.com. Retirement power hour podcast.com. That's where you can submit a question for the show, or you can click the Work with me tab and you can get a free retirement analysis if you are within five years of retirement and you'll have a conversation with me that will be the first step to see if we can help you and if we would be a good fit. But again, it's all at retirement power hour podcast.com. And since it's 2024, we are doing a promotion this year for reviews for our show. If you go to Spotify, if you go to Apple, or you can go to retirement power hour podcast.com and you can leave us a review, just send us proof of your review through our website, and you'll be entered in a drawing to win a beautiful retirement Power hour mug.

Speaker 1 (01:54):

Be sure and go and do that. Leave us a review, Spotify or Apple, or you can do us do so on the website. Now let's talk about social security. Again, can you count on social security? Well, I wanna start with where is Social security? What is the state of the program? And if you read the Social Security trustees report, you'll see that social security is 10 years away from insolvency. I don't wanna talk about what that means and I wanna explain the difference between that and bankruptcy, which are totally two different things. So as of the 2023 report, social security said we were 11 years away from insolvency. Now here we are in 2024, so we're 10 years away from insolvency, and that just means that at, in 2034, social Security will not be able to pay out all of the benefits that have been promised with the money that's coming in.

Speaker 1 (02:48):

Currently, the Social Security Reserves has about $2.8 trillion in it, but that reserve will be depleted by the end of 2023. Therefore, in 2034 when benefits are going out, there won't be enough money to pay for all of those benefits. So we have about 10 years. Number two is upon insolvency, all beneficiaries would face a 20% cut across the board if no changes are made between now and then. So if no changes are made, a 20% cut would go into effect approximately in 2034. We have $2.8 trillion in the reserve fund now, but that will be depleted over the next 10 years. Another thing to consider, social security's finances continue to get worse. The recent surge in inflation worsened social security's finances relative to the 2022 report leading insolvency to occur a year earlier. So, you know, we've been trying, or social security has been trying to predict when insolvency would occur.

Speaker 1 (03:51):

And after the 2022 to 2023 report, that date was moved up one year. Now the key is time is running out on making these fixes. So we have time, there are options, and I wanna talk about a couple misconceptions that I've kind of hinted on already. But first, it's important to understand the difference here that I'm not sounding any alarms of, of things that cannot be fixed. There are plenty of ways to fix Social security and we are gonna talk about that here in just a minute. And it, there is a very big difference between Social Security completely not being here and going bankrupt and, and not even existing and being insolvent. And so whoever says Social security is gonna go bankrupt or, or I'm never gonna receive Social security benefits, there's, there's really a lack of understanding there on, on how it works because as I said, there would need to be a 20% cut if no changes are made.

Speaker 1 (04:50):

However, at that point from 2034, we would be on pace to satisfy all benefits for the next 75 years at that level. So, you know, we've got 85 years of benefits on schedule to be paid out. If no changes are made, we would need a 20% cut. But anyone who says again that social security is just not gonna be there for me, they're either not understanding or they're not being realistic about that. And there are plenty of ways to fix the problem. So what, what should you do? Well, first off, you, you need to understand and plan for the potential for a 20% cut. Because as simple as it's gonna sound here as I lay this out, we can't count on other people to do the right thing or to especially do the smart thing or the common sense thing, especially when we're talking about politicians.

Speaker 1 (05:39):

And that's both sides. So, you know, when, when you go and do your plan, you need to, to punch in what if we have a 20% cut in my social security benefits? What if I don't get my full Social Security? Not what if I get zero? I don't think that's realistic, but what if my benefits get reduced? And while I say that, I've talked to many experts out in the, in the retirement field about this, and the likelihood that social security does get cut by 20%, I think, and this is my personal opinion, I think is very, very low. You have too many people who are relying too much on social security. I don't think that's likely at all. I do think that things will be done hopefully sooner rather than later, but I do think things will be done to keep the benefits where they are because too many people rely on them very heavily.

Speaker 1 (06:30):

And so for what it's worth, you know, I don't think it's likely to see a 20% cut. However, we don't know. So you need to plan, need to put that what if in there and also reach out to your lawmakers, try to let your voice be heard on this. This is an issue that affects everybody. So it's not one side of the aisle or another, it's kind of no one wants to touch this because some of the changes that would need to be made may not be popular, but they're the right decisions. And again, I'll cover some here in just a minute, but the longer lawmakers wait, the, the more we're gonna have to do to fix this problem. For example, a 75 year solvency could be achieved currently with a 28% payroll tax increase today. But if we wait until 2034, it would need to be a 33% payroll tax increase.

Speaker 1 (07:23):

So instead of 28, 30 3%, again, it makes a lot more sense to do something today because we know we're coming to that point where some action is going to need to be taken. With that said, you can also go to a website and create your own plan, and that's what I've done and I'm gonna share that with you today. But the website is cr fb.org cr fb.org/social security reformer. And that cf, or excuse me, CRF B stands for committee for a Responsible Federal budget. And that's the website. You can literally create your own plan. They give you options, you can click different boxes, you can create your own plan to fill the gap that we have in Social Security. And that's what I've done. So I wanted to just share with you how easy it could be to fix social security and the simple things and really the common sense things that could be done and probably should be done to fix social security.

Speaker 1 (08:29):

This is just an example. There are a lot of ways to fix social security and a lot of things that can be done. But here's a plan that I put together. So the first part of my plan on how to fix social security is, and, and don't throw any tomatoes at me here, again, these, these are common sense things, I'm gonna explain them, but the first part of it is increasing the full retirement age to 69 and then indexing for longevity. So currently the full retirement age is 67, and the last time changes were made to the full or normal retirement age was in 1983, and that's when Congress enacted a slow and gradual increase of that full retirement age from 65 to 67. That's why you have some people that are 66 and eight months, 66 and 10 months, and then people that are at 67.

Speaker 1 (09:16):

Well, there have been a lot of changes in life expectancy since that time. And also, bear in mind, if full retirement age is bumped back to 69, that would not have an impact on early retirement. But I think is something that, that could also be considered. When social security first started in 1935, there was no early retirement age. And that changed in 1956 when Congress allowed women to file for early retirement at the age of 62. They did the same thing for men in 1961, allowing men to file for early retirement at the age of 62. However, according to life expectancy tables in 1961, the average life expectancy for a female was just another 17.83 years. So 17.83 years compare that though to the average life expectancy for a 60-year-old female in 2020, which was 23.67 years. So life expectancies are growing, but the age at which men and women can begin drawing social security has not, and it has not changed in the last 63 years.

Speaker 1 (10:31):

Now, pause for a second. Does that seem like it makes sense? Does that seem like common sense to me? It doesn't quite seem like common sense because again, the life expectancies are going up. This is an old age retirement fund. You know, that's really why this was designed not an early retirement, uh, supplement for folks who are just wanting to retire early. So again, my plan doesn't affect early retirement, but that is something that can be considered. But when we talk about increasing full retirement age, there is reason for that. As we've seen life expectancies go longer, people are living longer, that means we're paying them more, you know, paying benefits out for more years. So that, that simple change, increasing the full retirement age and then indexing for and for longevity, which just means it would automatically increase compared to longevity. Just like we see cost of living, you know, and, and I'm not sure logistically how they would get that done, but that sort of ties that, uh, longevity metric to full retirement age going forward, that covers 38% of the gap.

Speaker 1 (11:42):

If we have a hundred percent gap, that covers 38% of it. So it's a pretty significant change. Uh, another change number two, number two, part of my plan here modify cost of living to index to chained CPI or consumer Price Index rather than the current C-P-I-W-C-P-I-W stands for, uh, consumer Price Index for Urban Wage Earners and clerical workers. Now, this is just how the colas, the Cost of living adjustments are calculated. And some people believe that the current CPIW doesn't accurately reflect CPI or inflation for the majority of people. So this is a slight change that could be made chained CPI it, it would cover 18% of that gap. 18% of the gap. Part three of my plan, my sample plan that I've, that I've put together here is making 90% of wages subject to payroll tax or social security tax. Right now we only have about 83% of wages that are subject to payroll tax because of the social security wage base being where it is.

Speaker 1 (12:54):

And so what would this do? This would increase the social security wage base to lump in a higher percentage of wages, and that was sort of the original design, was to have a higher percent of a higher percentage of wages included in the payroll tax to cover all of the benefits that are going out. So in 2024, the social security wage base is $168,600. So that would have to go up. In other words, if, if someone makes $500,000 in 2024, only $168,600 is gonna be taxed for Social Security. So that number would have to go up, more wages would have to be taxed for Social Security, uh, as part of this plan. And doing that would cover 21% of the gap. Now, some people aren't gonna like that, so most people aren't gonna like pushing the full retirement age back. People may not like the chain CPI, but you know, we can do some of these things, which some of them make very logical sense.

Speaker 1 (13:55):

We don't like 'em, but they, they make logical sense. They, they may, we may not like 'em. The alternative is 20% cut for everybody across the board in 10 years. So these are hard decisions, but some of them, many of them I think need to be made. Part four of the plan that I put together, diversify trust fund or Reserve Fund to increase returns. So currently the, the $2.8 trillion that is in the Reserve Fund is limited on how it can be invested. It's currently in non-marketable government bonds. But if we could use stocks or, or other types of maybe corporate bonds, other types of investments for that $2.8 trillion, that could add some return and could extend the life of the reserve fund. So that's something would that, that would cover approximately 6% of the gap. So we're getting close right now. We haven't reduced social security benefits at all.

Speaker 1 (14:52):

We've made some changes and we've closed a lot of the gap. Two more. Number five on the list is to calculate benefits on the highest 38 years of earnings rather than the highest 35 years of, of earnings, which is how we currently do this. So doing this would probably pull in some lower earning years, maybe some zero earning years along with the rest of your working years. But using 38 years probably makes more sense if you extend out the normal retirement age. And then last but not least, increase payroll tax by 0.3%, 0.3%. I don't like to increase taxes, but such a small increase along with everything else could solve this gap. You know, and I said earlier, a payroll tax increase of 28%, if that's all you did, could fix every, you know, could fix the whole problem. Well, if we do some of these other things, then we only have to increase payroll tax by 0.3%.

Speaker 1 (15:58):

And you know, to me, some of these other things are common sense. I think they're very logical. That's my plan. You can make up your own plan. Go to cr fb.org/social Security reformer, we'll put that link in the show notes and you can build your own plan. But there you have it. Should you count on Social Security? Well, I think you should. Even if you're 10 years old right now, you know we have right now in 10 years we will be insolvent if no changes are made. But benefits will be paid out for another 75 years after that. You'll be 95 years old, 10-year-old out there listening. Most of you probably are a little bit older. So yeah, I think you can easily account on Social security. We hope that no cuts need to be made. Talk to your lawmakers, talk to your representatives. Start raising your voice about this.

Speaker 1 (16:47):

This is a real issue. It needs to get fixed and it needs to get fixed sooner than later. So there you have it. Thank you for watching this episode of Social Security Benefits. Will you get them and make sure to tune in to the Retirement Power Hour, um, or go to retirement power hour podcast.com, submit your question, we'll read it on the show or click work with me and we can schedule your introductory 30 minute phone call. See if we can help you with that. I hope you enjoyed this episode of The Retirement Power Hour, or we help listeners invest wiser and retire better. Take care.

Speaker 2 (17:20):

Thank you for listening to the Retirement Power Hour podcast. All material discussed on this podcast is for educational purposes only and should not be construed as individual tax, legal or investment advice. Investing involves risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results. Joe Allaria is an investment advisor representative of Carson Allaria Wealth Management, a registered investment advisory firm. Information discussed on this podcast may be derived from third parties that are believed to be reliable, but Carcin Allaria Wealth Management does not control or guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Any references to third parties are provided as a convenience and do not constitute an endorsement.