Is Social Security Going Away? Planning for a Secure Retirement

Our job as an advisor, and what you should be doing as a client, is make an informed decision, meaning you need to weigh the pros and cons of both decisions.

So one thing you could do is buy that Social Security, buy an annuity stream. Other one, you might need more bonds, more fixed income, more of a ballast. If we are losing the lower risk portion of our portfolio, maybe you might have to take on less risk, which again has its own repercussions. We take on risk in retirement because we most often need to grow assets above inflation. The equities, the risky assets are what powers our inflation-adjusted spending.

The bonds will not keep pace with inflation. It's just a fact. The purchasing power erodes. Not a big deal if you're only spending 10 or 15 years in retirement. It is if you're planning for 30 or more years. Welcome to the Healthy and Wealthy Retirement, where your certified retirement counselor, takes a holistic approach to retirement. Going beyond the. Music.

The emotional parts of retirement. Everything you need for healthier, a wealthier, and a happier retirement. Welcome to the Healthy and Wealthy Retirement. My name is Mark Struthers. I'm your host.

And today we are talking about Social Security. It's come up a lot more recently, kind of called post-Doge. And Social Security has always been a topic of conversation. But two additional topics have come up recently. Solvency has always kind of been on the radar screen, but it was, depending on the time, it was a little bit muted when working with clients. The two other topics that have come up is accessibility and termination, if you will, of Social Security.

So we're going to talk all three today. We're mainly going to focus on kind of give you some, hopefully, comfort as far as how you treat Social Security if you plan for it. And then when you think about Social Security and its solvency, things you can do to one plan and then compensate for it, if you will. So kind of how do you integrate Social Security, which what some say is a new paradigm shift? I think that's too strong a word. But let's start off by talking about termination.

I understand people being scared. We've paid into Social Security. For some folks, Social Security makes up a big chunk of what they live on if they're retired. And keep in mind, Social Security was not designed to be an income replacement.

But some folks are often maybe less fortunate. They rely on it. And you can understand people's concern. Roughly, I believe the number is it was designed to replace roughly 40% of the typical worker. So for some, it might be up above 50%, 60%, some it's higher. But for other folks, it's probably more in the 30% range. But regardless, it was not meant to be an income replacement. But that being said, it is a cornerstone of our society.

And it's often called the third rail. Well, I shouldn't say, not anymore, you don't hear it. But our entitlement programs, especially Social Security, are the third rail of politics. It's because that's the electrified rail. You don't touch it. And I don't think that's going to change.

Regardless of your political party, those who are in retirement age, those who are late 60s or older, are very active politically, in part because they have the time, in part because they care about stuff like this. So if you are concerned, certainly get active, but I don't think either party is going to just terminate. I don't think Doge is going to go in and terminate Social Security. I definitely tried to see all sides of an argument. And again, I understand the concern.

But quite often, that fear, I think, overtakes us. You kind of got to look. If you look at the facts, a political party that does terminate Social Security would not be in power very long, bottom line. And just even within those individual parties, you know, and some would argue we need at least a third party, if not a fourth party. But that being said, I don't think it's going away. So take a breath, try not to let fear take you over and really think about, is that a real,

is that something that would realistically happen? And even if it did happen? Would it happen for very long? You know, again, people would be out voting. It would just, so I'm not going to talk about that anymore. I don't want to dismiss your concerns. I understand the fear, but it being terminated anytime, well, actually really anytime. Especially, you know, kind of here in the midst of Doge is just a, I never say never, but almost impossible.

But the other issue is accessibility. So working with the Social Security Department has always been challenging for clients, although sometimes the positive experiences are often overlooked. You know, just keep that in mind. And I realize, I certainly will freely admit, working with a lot of government agencies can be challenging. It seems like they are less responsive than the private sector. And I hope that's not too politically charged, but that has been my overwhelming experiences.

But you can also, with large companies, you could run in someone who has worked for a couple of them. You could certainly run into that as well. So accessibility or dealing with them has always been problematic, but even more so because there's been cutbacks post-doge, if that's the right terminology. And one thing that is very clear is if you have to do anything in person, you're probably going to run into issues. So I guess the one takeaway here is one, do things online.

And I strongly encourage those even older folks, take the time to learn. I know you didn't grow up with computers. I understand that. But times change. And I can almost guarantee you, and this is going to be a little tough love. Because I've seen this with, and I'll use my family members, I've seen this with my folks, I've seen this with older relatives, they can take plenty of time to study bridge and come up with complicated plays.

They can come up with, they can be a part of five fantasy football leagues and handicapped player stats. They can do prize picks and horse betting and complicated parlays. If you can spend 20 hours a week doing those things, you can take some time to make sure that you can get access to your social security. Get help. Go to the library. There's programs all the time. Get family members, friends. So realize it might not happen overnight, but make sure that you are able to get online safely.

And just take some time to be aware of some of the fraud stuff out there.

But do things online if you try to do things in person i especially post doge i you will i think you will be disappointed and keep in mind too i don't think anyone really thinks the people in social security department are are evil there's a lot of people that are well intended and meaning and they're just trying to get a job done so be patient with them but the best advice is do things online and keep it standard don't do things that require you to to

be it to be in person that are unusual that are in ordinary if you have to claiming retroactively whatever it is and i think recently here with the the is it called the fairness act where they're starting to allow people that had pension offsets people got pensions weren't qualified now they are And that one you just might not have a choice Because if you want the money It might require you to To be involved with them But whenever you're doing something

If you decide on a course of action If it's unusual If, Understand that's reality, that you are probably going to have issues if you have to do something in person. Keep it standard. Keep it simple. Keep it online if you can. Also, be very careful that you do not get overpaid. Underpaid, too. Because with both of those, it's going to require you to navigate the bureaucracy, the system.

And obviously, they're having issues. They're going to have issues. But especially if you get overpaid. So that's why make sure what you're doing is correct. Try to make sure the numbers are correct. I think some of the good stories from the Social Security Department are ignored. But if you do go in person, a lot of bad information comes from them. They're often dealing with a complicated issue, and quite often they are understaffed, underpaid.

You certainly can maybe say that there's other issues. Regardless, try to be respectful, acknowledge reality, online, keep it simple, and just make sure your numbers are correct. Especially if you do get overpaid, it could be a nightmare going forward. The third thing that we're going to talk today is solvency. Now, I've been on the retail financial planning side for over 10 years. I've been a CFP for over 10 years. But even before that, Social Security was talked about.

So I've been in the industry for a little over 25 years, almost all my adult life.

And this conversation isn't new. So the latest stat suggests that by 2035, the Social Security can only pay about 80% of its promised benefits. And yeah, that's concerning. But keep in mind, something similar happened in the 80s. They made a few adjustments and they kicked the can down the road. Now, the longer they kick that can without dealing with our excessive spending and debt, the less easier it's going to be to fix this.

That should not be a controversial statement. I don't think either political party thinks that they can constantly just take on as much debt as they want and print money without consequences.

What has changed a little bit is one the size of the debt and a lot of that is post-covid you know and i know not taking sides here some of that is perfectly justified but the bottom line is, we're not on a good path but does that mean that we can't afford social security for quite a while the answer is no we're still a very strong economy we're still the best house on the global block.

And even if the global block is taking on too much debt or less so for the United States, at least for now, but other countries have, make it much tougher to do business. It's why we are so innovative. It's why we have the tech companies. It's why we're the strongest economy. And to be blunt, it's why we buy more stuff. Part of the reason, why we buy more stuff. Now, I know there's other issues. I think especially as people look in to some of the trade issues.

The bottom line is we are a healthy, strong economy. We can still afford to do a lot of things. So some of the things that have been floated that could make it solve it, I think they try to think in terms of 75 years. But even if it's 30, 40, 50 years, and then hopefully we are getting our act together. But increasing the cap on how much wages are taxed. So not all your wages, you make 300,000, not all your wages are taxed.

So just increasing that, that's one method. And that certainly isn't odorous. I think what you're going to find as we move forward to solve this problem is, is there won't be a means test. And I've had a lot of wealthy people say there should be. Just a gentleman in my office the other day, a small business owner. I think every time he comes in, he talks about how he shouldn't get Social Security.

Now, he says he's not going to, and I don't blame him, he's not going to give it back to the government given they seem to do things that are wasteful. But he does, his RMDs go to charity, and I get that. But I don't think there's going to be a means test. But you're going to have kind of a backdoor means test. And that's something you could do, that if you have someone who's making $300,000, more and more of that could be have the Social Security tax.

You know, and that's something, if you're on the other, if you're the person being taxed, I know that's not good. But some of these changes are ways that, you know, it's better than, something like that is going to be better. I think more people are going to accept that than say, just assume a Social Security is not going to be there. Have it go bankrupt. And moving the social security tax, something relatively small.

So I've seen from 12.2 to 12.4%. So, and I know that we always seem to have taxes upon taxes. We have income tax, sales tax, property taxes, all these taxes, tax, tax, tax, tax, where it's just water torture. That small change could do it. Or maybe they meet in the middle on all these things. So changing the full retirement age. So, and I, you know, from my perspective, I think you, like with my boys that are under the age of 20, say, you know, have them, which makes sense.

If we're living longer, this retirement age should be moved back. So having that retirement age moved or having like top, I think one that was floated was top 40% of earners have their full retirement age moved from 67%, to 70. So in all these cases, you can still assume Social Security might be there. You might have to wait the claim. But all these are ways that they can certainly fix the system.

Another one that I was surprised as I was researching this was apparently a lot of Social Security funds, or a lot, I'm not sure how much, have been diverted to the HI fund, a Medicare part, I think it's Medicare part A fund, which sounds like they had to do it to make that solvent. Why not just divert it back? So the takeaway here is these are fairly small things that if you're on the other side of them, I realize that's not a good thing.

But when I see the fear out there of people saying, well, it's not going to be there at all, they're going to take it away. Well, these are small changes that would you, you know, Would you rather have some higher earners? And again, it's tough to single out any one group, but when you say if someone's going to have to suffer, unfortunately, it's probably going to be them.

I have a hard time believing that, especially for those that are nearing or in retirement, that we will ever touch Social Security for those who operate in the lower tax bracket, I would say two, two and a half.

So those who don't have a lot of assets kicking off income i have a hard time believing that they're ever going to tax it too much or move that too much so while we're facing challenges and while the u.s has had kind of a little bit of a wake-up call so it's it's this kind of solvency issue has been around for a while the thing with doge have has kind of brought things to the forefront, but it's also, we're seeing more signs that people will not always buy our debt.

In order for us to finance all these entitlements, we have to sell debt. And if people quit buying it, and again, I got to emphasize, these are small signs. You know, we're still a very healthy economy and we still have a long ways to go before we entirely mess this. But you can't deny that there are some signs. You've seen the dollar decline.

You've seen people say, you know, and if other kind of, you know, you throw in the fact that if other countries are kind of forced to go on their own, And where they say, we're not going to rely on the U.S. Anymore, necessity is a mother invention where they say, we're going to start trying to find ways of operating without the United States. That is possible, but that's going to take a long time. We still are an innovative, hardworking people. We still are the reserve currency.

And it's still very likely that if we were to have a global recession, not something mild that's maybe just to the U.S., people are probably still going to flock to us, to our debt and our dollar. So I often will tell people this to say, you know what, things aren't probably quite as bad as you see on TV or on social media. But when we do financial plans, folks often say, you know what, I don't want to plan with Social Security.

And you can do that. As you might guess, I think that is too conservative a way to go because we are still such a strong economy. We still have a lot of runway.

We can fix this with some small tweaks and a little bit of suffering. But the suffering is probably going to be with higher income folks. I hope it's not the middle class or the upper middle class. I just don't think that's the case. But if you are going to discount it, I used to say younger people like under 40, assume 80% or something like it. But over the last 10 years, I have changed. And part of that is post-COVID. Part of it is that we haven't done a lot to change things.

I think if, you know, so when I was thinking about this, I was trying to come up with a range. So I think if you're under 30, I don't see anything horribly wrong with assuming Social Security is going to be there, realizing to keep an eye on it and you could change. But if you wanted to be safe, I would say assume zero to 50%. My word of caution is any decision you make has a trade-off, that if you're sacrificing too much, you could end up suffering for no reason because you don't know for sure.

To always assume the worst case scenario, to always assume that when you drive your car, there's going to be an accident that kills you, well, you'll never leave the house, where the cure is worse than disease, if you will. You know, if you put off getting married, having a family because of the fear of Social Security, to me, I think that's a bad call given you don't know. So I think somewhere between zero and 50%, I have a hard time believing that nothing's going to be there.

For my sons who are under 20, I think the most likely scenario is that they probably get their full Social Security, but their full retirement age will probably be like 75%. And, you know, you could model something like that, and it's difficult because financial planning software is not necessarily set up that way. But so I think assuming something like, assuming some sort of discount, I think the discount has to be larger.

One thing I will say for younger people, not having, just like not having pensions was a change for Gen Xers. I think not realizing that Social Security might not be there for you, take a hard look at how you're managing your career. Just like Gen Xers couldn't do what boomers do where their loyalty to a company was rewarded with decades of health insurance and income and a gold watch and a nice pension.

So I think you really need to think of, do you need to try to make sure you earn a little more? Should you maybe save a little bit more? Absolutely, I get. But you want to make sure you're getting a return on memories, not just a return on your investment. But I think it's a good thing to say, if Social Security is not going to be there, how do I increase my personal capital, my personal income? You have control over that, and you have a long time horizon. So something to think about.

I've broken this out in somewhat generational. Not all generations are 15 years. But from 30 to 45, I think somewhere between 30 and 80%. Again, the closer you get to retirement, just logically, it's hard to believe they are going to reduce your promised benefit that much. So you figure something around 60%. Again, I think if you get down into 30, 40, I think that's too conservative. But that's certainly something that you could do.

For 45 to 60, again, you're getting closer and closer to retirement. I think 60 to 90%. I just have a, if you're 60 years old now, I have a hard time believing that they are going to reduce your benefit that much. Again, the caveat being, if you are a higher earner. If you are someone that makes a lot of money and has a lot of assets, they could do some sort of kind of backdoor means testing.

And if you are 60 to 75, meaning you're either close to retirement or you've already started claiming, I would assume 80 to 100% of your expected income. It's just to have a hard time believing that they would take that much away from you. I guess it's the third rail. Other than higher income, really higher income earners, I don't think that's the case.

For those of you that have followed my media writings, whatever, something might have occurred to you is to say, well, Mark, what if you were a high income person, which if they increase the amount of wage that's taxable, that's something you can't control. But what can you control if there's no means testing, if you're in retirement and you're concerned that they're going to find ways of using you to fund Social Security?

You don't have income producing accounts, meaning you probably have Roth accounts or well-managed taxable accounts. And that's something that if you're concerned about it, and we're going to do a piece on IRAs here in a week or two as well. and I just got done with them. I saw something where a gentleman was talking about old tax rates where they used to be 70, top rates was like 70 or 90%.

Again, I have a hard time believing that we will go back to that high a tax rate, but could you have higher earners pay more than the top rate of 37%? On the federal side, you could. So Roth is one way to maybe to help protect yourself. So what are some other things you can do that if you are concerned, Social Security is not going to be there? You could buy your own Social Security, meaning buy an annuity. And annuity is a loaded word.

I mostly refer to an immediate annuity, because that's really the closest thing to Social Security. You say, I'm going to turn over $500,000 at the age of 65, and they'll give you an income stream for life.

And that's not a horrible thing as in the little book i wrote i even mentioned, supplementing your social security given we don't have pensions it's not a horrible idea, if you are assuming social security is not going to be there and i think advice i think folks and advisors should take this more into account that even if things aren't even if you take my more optimistic view that things aren't as dark as some people make it out to be you still have to say there is a greater risk,

and as we move forward through time, if we don't change, that that income stream is not going to be there. That income stream gives you an essence of safety net. If it's paying for 20%, 30%, 40% of your expenses, it allows you to take on risk other places. So you might want to buy. Now, when you buy these annuity streams, one of the biggest risks is inflation. That inflation could be trying to buy an inflation adjustment is very expensive.

In the case of Social Security, it has COLA, cost of living adjustment. It doesn't match up perfectly with kind of inflation, especially healthcare, but it's not horrible.

I don't remember. We look back historically and came up with a lower COLA inflation rate than we did normal inflation. But again, it's better than 98% of the pensions you see now. So you could buy an annuity. You could buy a deferred annuity. Those are often oversold because they're such high commissions. Quite often you see commissions. Someone told me they're often 5% now. I haven't seen any directly, but they could be as high as 10 or 15.

The immediate annuity is often 1% to 3%. And folks, I'll be perfectly honest, a lot of folks are not comfortable buying an immediate annuity. They don't like turning over all their cash. It's understandable. I think if financial planning is about making an informed decision, I think if you're really concerned about Social Security not being there, consider those.

Now, you could do a deferred annuity. The only question you have to ask is you need to make sure you are comparing the two or maybe three alternatives, but two alternatives. So are you better off letting your income, your savings invest and grow and compound outside of an annuity because it's almost always lower fee, has a lower fee, and you have more investment options, and then using that larger amount to buy that immediate annuity?

At or close to retirement? Or are you better off having the deferred annuity? And there could be advantages. There could be insurance advantages, long-term care. There could be some tax deferral. There could be other features and benefits. But make sure you are looking at what both looks like at the future. It's a lot like if you buy term and invest a difference as opposed to buying a whole life insurance policy.

What does that look like? What are the pros and cons? That's probably my biggest issue with the way that insurance products are sold is that they are sold. I think maybe one time when I used to do employee financial well-being, when we had folks come in, we would see a lot of insurance policies. And we're talking hundreds of folks. And I think maybe one time they said their advisor actually showed them buy term and invest a difference compared to a permanent insurance product.

That's the issue I have. Our job as an advisor, and what you should be doing as a client, is make an informed decision, meaning you need to weigh the pros and cons of both decisions. So one thing you could do is buy that Social Security, buy an annuity stream. Other ones, you might need more bonds, more fixed income, more of a ballast. If we are losing the lower risk portion of our portfolio, trying to take, maybe you might have to take on less risk, which again has its own repercussions.

We take on risk in retirement because we most often need to grow assets above inflation. The equities, the risky assets are what powers our inflation adjusted spending. The bonds will not keep pace with inflation. It's just a fact. The purchasing power erodes. Not a big deal if you're only spending 10 or 15 years in retirement. It is if you're planning for 30 or more years. And I will also say, you know, you can certainly look at real estate as well.

Some folks use real estate as a bond replacement. The issues with that, probably self-evident, is real estate can be risky. You know, you still, you have to have, you know, commercial or residential, you still have to have renters. You have to have someone that's actually giving you that income stream. There's costs associated with real estate. There could be your time.

But that being said, if you're looking for a diversifier, diversification is probably going to be more important if you don't have the Social Security to act as a low-risk, almost like a low-risk asset in retirement. And diversification with your other assets. So we've often talked about the lost decade that the S&P 500 had. Even a country as great and innovative as the U.S.

On valuation methods or a recession or what have you is going to have times where it underperforms, which, again, when you're looking for predictable returns in retirement, we're a big believer that you're better off being diversified, having less volatility or potentially less volatility. Even if you give up some of that concentration return of being only invested in large company tech.

And you certainly have seen that the last three months, maybe six, maybe six, Where large tech, and part of that is S&P 500 is largely made up of large tech companies, has underperformed, whereas other asset classes have not. I think that's going to be even more critical when you talk about losing the safety of Social Security.

Lastly, when you think about your withdrawal strategy. So one strategy that is often overlooked is called a guardrail strategy, and it might have some different names. Basically, when you think about going into retirement without Social Security or reduced Social Security, having a withdrawal strategy that because you're going to be that much more dependent upon your investments, that having a withdrawal strategy that reacts to that investment doesn't overreact. We have parameters around it.

But I think doing something like that and understand the consequences of it is probably going to be more critical. So don't try to react to the fear. Try to look at the facts, realizing that we're still in great shape, that the idea that it goes away completely is just a low probability event. But as these years have gone by, the risk is greater. You probably need to discount it if you're younger.

And if you are discounting it or assuming it's not going to be there, you're going to have to probably adjust your approach to how you invest, maybe even account types. So unfortunately, this makes financial planning more complicated because we're dealing with another unknown. We've always had to guess at what stock market return, bond market returns, inflation, healthcare, real estate might return. But now we even have to guess, How do I count on Social Security?

So I hope this helped put things in perspective. I think if you take a step back, I think some of the fear might subside. And that's what planning is all about. Planning is about making a better decision. It's about shining some light underneath the bed so you can sleep a little easier. And realizing that, no, things are not perfect. But also things aren't as bad as some people make it out to be. And, you know, come up with a plan that does help you sleep at night.

Because if you do those things, you will have a healthier, a wealthier, and a happier retirement. Don't forget to hit subscribe. Go T-Wolves! Thanks for tuning in. If you enjoyed this episode, make sure to hit subscribe, leave a review, and share with your friends. Share the love. Make sure they have a healthier, a wealthier, and a happier retirement as well. Also, don't forget to subscribe to our newsletter for free resources and check out our website and social media pages for exclusive

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