Will Social Security Be Cut & What Does It Mean For Your Retirement | Social Security and Your Retirement Planning

Is Social Security going to be there for you when you need it over time in your retirement? It’s the biggest question that I received most consistently, and I’m going to answer for you today. I am Troy Sharpe, CEO of Oak Harvest Financial Group, CERTIFIED FINANCIAL PLANNER™ Professional (CFP®), host of the Retirement Income Show and certified tax specialist.

So it’s a tossup which question I received the most from clients. It’s either, “Troy, where do I stack up? How do I compare to other people as far as the amount of money that I have saved? And will Social Security be there for me?”

We’re going to address Social Security, because there is a lot of misinformation out there. And also just a lack of understanding, generally speaking, about Social Security and its solvency and what some of the options are for the government to fix it so you can count on your Social Security income

Now, what do I have here? This is the debt clock, just to show you how dire the situation is. And I’m not going to sugarcoat it. The Social Security situation is dire. So is the Medicare. It’s even in even worse condition.

But it’s most likely not something you’ll have to worry about during your lifetime down the road, Politicians are quite adept at kicking the can. Someone will have to deal with this, but most likely for most of you out there in this country, it won’t be you

 

So here is how bad it is. We owe twenty one trillion dollars in unfunded Social Security liabilities. This is everyone who has been promised Social Security future payments that the system will have to make. It’s 21 trillion. Now, to put that into context, if I were to ask you to count to one trillion.

One one thousand two. One thousand three, one thousand. It would take you about thirty two thousand years to do so. We have twenty one trillion in unfunded future Social Security debt. Medicare is even worse. It’s thirty three trillion.

The trust fund for Medicare runs out of money much, much, much more quickly. But we’re focusing on Social Security today. Now, this is not the first time the Social Security has been in trouble.

As a matter of fact, this has been going on for decades.

It is simply a poorly designed system currently by year 2035. The trust fund will run out of money. The trust fund is technically already exhausted. The money has been spent, but there are IOUs in there, the form of Treasury bonds.

So but Treasury bonds are as good as money, at least to the federal government and to the rest of the world, for that matter, Treasury bonds. As long as the dollar is the world’s reserve currency, very, very solid, safe tools.

By year twenty thirty five, though, it’s anticipated that the fund will be exhausted and there will only be enough to pay out 79 percent of the promised benefits. So that means at that time, when there’s no more money in the trust fund, only the dollars going into the system from FICA payroll taxes and then being transferred to
Social Security recipients will be there to fund the benefits. That’s estimated to be seventy nine percent of what is promised. Now, it goes down almost every single year. Just last year, I believe, or the year before it was year twenty thirty seven.

It will go down again and most likely go down again. This is not the first time this has happened, as I said. But here are some basic solutions to what they can do and most likely what they will do at some point very soon.

When I say very soon, within the next five to ten years. Number one, increase the wage cap. So currently, if you make more than a hundred and forty two thousand eight hundred dollars in this country, you do not pay Social Security taxes.

It’s FICA withheld from your paycheck on your W-2 thousand dollars. So this would be a big tax increase that would help go towards shoring up the shortfall in Social Security. FRA increase this is Full Retirement Age, depending on when you were born, your full retirement age was either sixty five, sixty six, maybe sixty six in some months or age sixty seven.

So prior to 1983, Social Security full retirement age was 65. Now, for most of you, it’s going to be somewhere between age of 66 to 67, but they’re going to most likely increase the full retirement age. Yes, we are living longer.
And is that going to be maybe age 70, maybe seventy two? I don’t know. But it is definitely a step that is likely to be taken to increase the solvency of Social Security. Number three, making the benefits 100 percent taxable.

So currently, depending on what your income is, it determines how much of your Social Security benefits are subject to taxation. They’re either completely tax free. Fifty percent of Unlike. Normal income taxation, these funds that are tax from your Social Security go directly into the Social Security trust system, they do not
go to the Treasury for general obligations. Means testing. I think this is very likely especially for affluent families or individuals, means testing means if you have a certain level of assets or you have a certain level of income, you will see a reduction in your Social Security benefits.

So one of those two is not out of this world as far as a possible outcome to solving up or shoring up Social Security and insolvency. As a matter of fact, as part of the Greenspan Commission from a long time ago, it was one of the recommendations.

It was around a 13 percent reduction in benefits as one of the choices. The other one was to increase taxation on Social Security. So anywhere between 10 to 15 percent is a reasonable estimation as far as means testing, if you’re concerned.

Nineteen eighty three. Just to give you an idea, before when they went to increase the If you’re in between this range, 50 percent of your benefits are subject to income tax, thirty four thousand plus eighty five
percent. This is modified adjusted gross income. So it’s you’re nontaxable interest like muni bonds plus 50 percent of your actual Social Security benefits, plus your adjusted gross income. Married filing jointly. Here are your ranges. So ultimately, they’re going to do a combination of these steps, possibly some others, to increase the solvency of Social Security.

It is one of the most politically probably unsavvy moves to go ahead and take your Social Security benefits away, because people in retirement approaching retirement is the largest voting block in this country. So it’ll be phased in over many, many, many years if any changes do come that negatively impact your Social Security benefits.
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