What Happens When Social Security Runs Out?

In this podcast episode, financial advisor Wes Capri discusses how Social Security is projected to run out by 2033-2035, and explores potential government solutions and personal planning strategies.

Chapters🕓
00:00 - Intro
00:19 - SS Trust Fund Depletion
03:00 - Sponsor
04:03 - What Can the Govt Do?
05:52 - What Can You Do?
07:35 - Final Thoughts
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Transcript

>> Wes Cuprill: 0:00

I would imagine pretty much every politician right now views trying to reform Social Security as career suicide. I could go off philosophically about the need for term limits and all of that. Regardless, what's going to have to happen is eventually the government will have to address the issue. Hello there and welcome to another episode of the WWW podcast. My name is Wes Cuprill, and in this week's episode, I want to build off of my last episode talking about the Social Security Fairness Act. Now, as I mentioned in that video, we still have to see what the IRs and the Social Security Administration decide in regards to how they will implement the Social Security Fairness Act. So for those of you who are affected by this new legislation, it still remains to be seen at what point you will see an increase in your benefits. It got me thinking about a much bigger issue in regards to Social Security. See, the Social Security Fairness act essentially is increasing the amount of money that the overall program pays out. They're talking billions of dollars over the next 10 years. But what they haven't talked about is what effect is that going to have on the overall solvency of Social Security. It may be known to you that Social Security is kind of a takingick time bomb right now. Depending on various estimates, the Social Security Trust fund, which is essentially the reserves of Social Security, is scheduled to run out sometime within the next 10 years. A lot of current estimates put it at 2035, but I'm now seeing estimates as soon as 2033. And the Social Security Fairness act is only going to accelerate the depletion of the trust fund. So it begs the question, what's going to be done? Now, I do want to mention what happens when the trust fund does run out. There's not enough reserves put away to fund all of the benefits that are being collected. Social Security currently pays out based on all of the people paying in and then whatever is in the trust fund. But if the trust fund runs out, all you have is the people paying into the system via, payroll taxes. And if they can't also withdraw from the trust fund, then benefits are going to be automatically cut across the board by 21%. So if you are currently collecting Social Security and the trust fund runs out and nothing's changed, you will see your benefits drop down at, 21%. So you'll get 79% of your existing benefit. That is everybody, regardless of status, regardless of how much you paid in. That is what it's going to be. That's a huge reduction in benefits for a lot of people. Especially if you rely a lot on Social Security. This episode of the Wealthwise Women podcast is brought to you by Money and Clarity. Wall street likes to make personal finance and investing complicated, but we are here to tell you that it isn't. But saving and investing for your future can bring with its stress, emotions and uncertainty, as well as many questions like how much do I need to have saved for retirement? What happens if the market declines? And probably the most important question of all, will I be okay? That's where we come in. Not only can we help simplify the financial planning process, we can also help guide you through all the emotions and uncertainty that come with planning for your future. So give us a call today at 513-563-7526 or go to visitwithmc.com to schedule a free no obligation consultation. We'll discuss how we might be able to help you achieve your financial goals and provide you peace of mind, knowing that you will be okay. There's various things that the government can do. Obviously, nobody wants to touch Social Security from a legislative standpoint. I would imagine pretty much every politician right now views trying to reform Social Security as career suicide. I could go off philosophically about the need for term limits and all of that. Regardless, what's going to have to happen is eventually the government will have to address the issue. They can raise taxes. You hear me talk all the time about the necessity for tax planning because if tax rates are going to go up, we want to pay the taxes now. And I see that being one of the surefire ways for them to pay for Social Security moving forward, raise taxes on everybody. I mean, currently right now, the ceiling for Social Security tax is 168,000, give or take. So they could raise that. Unfortunately, though, there's just not that many more people making money above 168,000 do for that to really make a dent in Social securities shortfall. So you're going to have to look at other revenue streams again. Retirement accounts is likely to be one that I could see them trying to tax in the future. All of that, untaxed money that people have in qualified accounts. The government could unfortunately look at that as a very juicy fruit, if you will, to try and plug the holes in the sinking ship that is Social Security. But, you know, they might try and reduce benefits or costs in the overall program. That one I don't see happening. One thing that they did do many years back was they started taxing Social Security benefits. So it was already something funded by taxes. And then, you know, depending on your income level, a certain percentage of your benefit could be taxed. It's all the way up to 80%, depending on your income. Who knows? That tax could go up. They could say, okay, 100% of your benefits are subject to tax past a certain threshold. We'll see in terms of what you can do to prepare for this, what is right now in inevitability, who knows how much Washington listens to its people? I like to think and have some faith still in our system of government. So certainly one thing you can do is write to your congressperson, write to your senators, tell them they need to start addressing this issue issue, get involved as civically as possible. But in terms of what is in your control, it does come down to putting a plan into place. For those of you who are in retirement or very close to retirement and collecting benefits, you do want to begin looking at what happens if your benefits get reduced. Do you have a plan in place to be able to account for a reduction of 21% of your Social Security income? Because what I don't want to happen to people is 2033 rolls around and you've just lost 21% of your income, and you have no idea how you're going to plug that hole. You have right now, potentially eight years. That is the time to begin thinking about it. For those of you who have a longer Runway until retirement, especially the younger that you are, the mindset that I'm trying to get people to adopt is the idea that you won't collect Social Security. I think it's better to be delightfully surprised later on that, okay, you're getting some Social Security benefits. But in terms of planning for retirement, it is better to go ahead and say, you know what, I'm not going to expect Social Security. So what that means is you need to put a plan into place that accounts for that and increase your overall savings now. So if that's something that you're looking for help on, that's certainly something we can do from helping you put strategies together to ensure that you can fund your own retirement if there's no other plans in place and Social Security goes by the wayside. We can also help with tax planning strategies, which I have discussed as well, because those are very, very important in regards to protecting your assets in the long term. So if you'd like to discuss this or any other topic, I know Social Security is a really, really big deal. So please do not hesitate to reach out to me. Just go to visitwith MC Dot. I'd love to hear your thoughts. I'd love to discuss this further with you, see what your concerns are and see if we might be able to help. That being said, I hope you enjoyed this episode, and I'll see you next week. Thank you.