Troy Sharpe: Ida Mae Fuller was the first social security recipient ever. She paid in a little over $24 into the social security trust fund, and received over $22,000 over the course of her retirement. Is it because of things like this that social security may run out? If so, how can we fix it?
Troy Sharpe: Hi, I’m Troy Sharpe, CEO of Oak Harvest Financial Group, host to the Retirement Income Show, and CERTIFIED FINANCIAL PLANNER™ Professional (CFP®). Social security by its very definition essentially is a Ponzi scheme. I’m not saying this in a bad way. What a Ponzi scheme is, is all the new money goes into the pot to pay the original investors. That’s what social security is. The entire social security system is set up so money comes out of your paycheck, goes into the trust fund, and pays people that are currently retired.
The money in the trust fund is required by the constitution to be invested in securities that are fully guaranteed by the faith of the United States government. This means the money they must invest goes into government bonds. This is how it actually works. The money comes out of your paycheck, it goes into the trust fund, then it goes to the treasury. In exchange, the treasury puts an IOU in the social security trust fund. That is an investment. The trust fund is investing in government bonds. The treasury can spend that money as needed and they owe it back to the trust fund whenever those bonds come due.
I just wanted to share that because it is the logistics of how money comes out of your paycheck and what the government does with it. The question becomes, one, are we getting a good return on that investment? Two, will that money be there in the future when you retire and you need social security, or if you’re currently receiving benefits, do you have to be afraid that your checks may stop at some point in the future?
There are some very simple things that the government can do and will do. It’s just not politically palatable at any time for either the Republicans or the Democrats to say, “We’re going to make adjustments to social security in this country,” because, one, the biggest voting block are people who are currently receiving benefits. Also, anytime we talk about taking away something that we’ve paid into, is not going to go over well with the public.
There are things you need to know about the situation and four ways that they may try to fix it. The first one is the payroll tax. Right now, the payroll tax is 12.4%. You pay half of that at 6.2% and your employer pays the other half at 6.2%. This will probably go up at some point in the future. It may go up to 13%, 13.5%, 14% or 15%, I don’t know. The payroll tax you’re responsible for paying half of, it is probably going to go up to help increase the longevity of the social security trust fund. The next one is the payroll cap. This is the amount of income that you can make and still have to pay taxes at that 6.2% rate in your employer match.
Anything made over $137,700 currently in 2020 is not taxed the payroll tax of 12.4%. This is probably going to go up. It does go up each year with inflation, but it could go up to $200,000, $300,000, $400,000, which would create a massive tax on businesses, and also higher income people obviously will contribute more into the system here. This number could go up substantially and that could lead to a lot of money coming into the system, but then also a lot more taxes for businesses and individuals.
Full retirement age. This is the age at the magic number, we call it, for social security benefits. Typically, if you’re receiving social security now, that was somewhere around age 66 for you. If you’re younger, this is what you really have to worry about. They’re probably going to raise the age at which you can receive your full benefit from 67, probably up to 69, 70, maybe 71. Plan on working longer, plan on saving more if you’re depending on social security when it comes to retirement.
Last but not least, one of the things that they probably will look at is what we call a means testing. If you have a certain level of income, if you have a certain level of assets, it is possible that they could look to reduce benefits for the wealthy. There could be an age break off for this, so everyone under 50 maybe would apply to this law. Currently, those over 50 wouldn’t. That would make it a bit more politically palatable because the people currently voting wouldn’t be affected by this, or the block that votes the most wouldn’t be affected by this.
There are things that can be done, and not all of them are going to go over well with the general public. The truth of the matter is, social security has been a Ponzi scheme from day one by definition, because the new people that pay into the system are paying out the original investors. That has created a problem for this country when it comes to social security benefits. All right. You know the deal. Like the video, subscribe to the channel, and I’ll see you soon.