For the first time since 1982, we had to dip into Social Security's trust fund to pay expenses for this year. So, what's that going to mean for your benefits and how do you plan for that?
Every year the government puts out a study about Social Security, which talks about the financial viability of the program. And let's be honest, we have known for a number of years that if things continue as they are and if we don't change anything, Social Security will run out of money. Specifically, it’s trust fund, which right now is trillions of dollars, will run dry by 2034.
The report this year confirmed reports from the past, but there is one main difference.
Unexpectedly this year, potentially because of the tax reform last year, there was less income coming into Social Security than anticipated. So, we actually had to dip into the trust fund for the first time since 1982 to pay benefits.
Cue the intense cinematic drop music...
Social Security Media Mania
Now, every year when this comes out, it's an opportunity for the media to make massive articles about why Social Security is in ruins.
This news is a big deal, but the media blows everything out of proportion. My favorite publication MarketWatch, who I regularly pick on for this kind of stuff, had this on their front page: “New Warnings About Cuts To Social Security Are A Reason To Worry.”
Well, great that's a great start.
Inside the article it says, “You spent a lifetime paying into Social Security but there's no guarantee that you'll get out of it what you've put in. In fact, the way things are looking today the odds aren't looking too good.” Yikes.
It's not realistic to believe your benefits are about to be cut dramatically or even disappear all together, because that assumes something that we've never seen from our politicians: a backbone.
It assumes that our politicians would actually say, “You know what? This isn't OK. We're going to make broad sweeping changes that aren't popular because it's the right thing to do.” Yeah, right.
What Will Social Security Look Like For You?
For years and years and years now, we have seen an increasing number of younger people buy into this mentality the media is promoting. Most people that come into my office under the age of 50, when we talk about Social Security their response is normally, “Yeah, I don't expect that I’m going to see any Social Security.”
This attitude is a mistake!
The assumption there is that we're going to continue without any changes. I think it's naive in many ways to assume Social Security is just going to lapse and we're going to let it go away.
Here are three ways that things could change:
1. Payroll Taxes -
Currently, payroll taxes are what fund the Social Security program. If you make more than about $124,000 a year, every dollar above that is no longer subject to Social Security taxes. One thing that could be done is simply remove that cap and say that all regular W-2 wages are going to be subject to Social Security payroll taxes. That would be a huge boost in income.
2. Retirement Age -
The full retirement age for Social Security could be increased. So, they could say you have to wait a little longer to get your benefits, giving more longevity to the program.
3. Cost of Living
The final thing that could change is the cost of living adjustments that are given. The government could continue to decrease the year over year cost of living adjustments, which they have done before and could continue to do.
Because of these potential changes, I don't think it's healthy to assume Social Security is not an option for your retirement.
So,you need to know how to plan for it. The problem is Social Security is incredibly complex.
Get A Grip On Your Benefits
Let me give you an example of this. I had a client come in, in the last few weeks. He is 68 and still working. His wife is 65, but had stopped working. His plan was to wait until he was 70 and then pull from his benefits.
But this couple actually had an option now that a lot of people don't know about.
His wife can file for her benefits because he hasn't filed yet. His wife did work for many years, even though her benefits are not massive, so she can go ahead and file for her benefits now and start receiving them. He can also file for a spousal benefit, getting half of her benefits.
Even though his benefit would be way bigger, because he hasn't filed yet, he can actually file as a spouse on her benefit and begin taking that money. When he turns 70 he can turn on his benefit, which is way higher and then she's going to change benefits to a spousal benefit.
And if you're confused now, that's totally ok, because here's the point: Social Security is confusing.
This couple didn't realize all the options they had to get the maximum amount of money possible from Social Security.
If you remember nothing else today remember this: Social Security is going to be around. So we have to deal with it.
You paid into this program for decades. You deserve every dollar you can get from this program. And I promise you this: the Social Security office is not going to give you a call and say, “Hey look I'm sorry. You actually you could have been taking this benefit. Did you know you were missing money from the government?”
If you are in your 60’s right now and you don't have a Social Security strategy, you have no idea exactly what you're going to do or you have doubt in your mind that you truly understand all your options.
Here's What I Suggest For You & Your Financial Future
You need to dig in and understand all your options, like I did with the couple I mention on the show. We were able to sit down, look at their situation and see that there are hundreds of dollars a month that are already available to them.
If you're not sure how to make a plan for retirement, please take a minute call our office. It's a simple step to a lifetime of difference. You have worked for years to put so much money away, don’t just leave money on the table.