The WWW Podcast

Social Security Cuts Coming Sooner Than You Think

Wes Cuprill Season 1 Episode 38

The Social Security crisis is no longer a distant problem—it’s arriving in 2034, a full year earlier than expected. In this Wealth Wise Women Podcast episode, we break down the truth behind recent headlines, the bills in Congress that claim to offer solutions (but few really do), and what women specifically need to know as longer life expectancies and spousal benefits increase their risk. This is a must-listen episode for anyone planning for retirement.

Chapters🕓
00:00 - Intro
00:47 - The Headline That Changes Everything
01:44 - Why Social Security’s Depletion Date Moved Up
02:00 - Why Women Are Hit Hardest
02:18 - What’s Congress Doing? The Bills on the Table
03:42 - Could Social Security Run Out Even Sooner?
04:43 - Planning for Less: Your Retirement Reality Check
05:29 - Let’s Talk: How I Can Help You Prepare
06:00 - Final Thoughts & A Realistic Outlook

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>> Speaker A:

Hi there.

>> Wes Cuprill:

I'm certified financial planner Wes Cuprill and this is Wealthwise Women, the show that's rewriting the narrative that personal finance and investing are just for men and just for insiders. Because whether or not the rest of my industry realizes it, the future of wealth in the United States is female. And I aim to foster that future one episode at a time.

>> Speaker A:

So join me as I attempt to.

>> Wes Cuprill:

Add humor and entertainment to the otherwise snoozefest that is personal finance, addressing along the way various topics from the lens of how they affect women in particular. And if you like what you hear, be sure to subscribe to our channel and our newsletter. The link to which you can find in the episode details that being said, let's get to this week's episode.

>> Speaker A:

Hello there and welcome to another episode of the Wealthwise Women Podcast. This week's topic is focused on a headline that I read recently. It is a subject that I have discussed before, and I have a feeling it's one that I will continue to discuss more and more as we moved forward. The headline that I read is this. The Social Security crisis is coming one year earlier than we thought. A few weeks ago I talked about the Social Security Fairness act, which eliminated the windfall provision for folks collecting public pensions. It enabled them to start collecting full Social Security benefits to which they were entitled. And I mentioned in my discussion that that was likely to accelerate the depletion of the Social Security Trust Fund, which is a huge fund of money that is being used to supplement the Social Security budget so that full benefits can be paid out to beneficiaries. To give you a little bit of history here, when Social Security first started back in the 30s, there were 42 people paying into Social Security for every one person collecting benefits. That ratio is now down to less than three to one. So there are less than three people paying into Social Security for every one person collecting benefits. Much of that that is because the age to collect has not really changed at all. It's still 65 years old. You can begin collecting Social Security benefits and people are living a lot longer. So when the program was first devised, people weren't living as long. Honestly, it wasn't expected for many people to collect at all. In fact, most people, they usually worked until they died. Things have obviously changed and people are living longer and retired for a lot longer. So there's a lot of strain being placed on the system. And there was already concerns about the solvency of Social Security. Andimate estimates had it running out sometime in the 2030s. That depletion date has now been moved to 2034. So full benefits are expected to be able to pay, to be paid out through 2033. And then in 2034, it's expected that benefits will be cut across the board by 23%. This is especially applicable to women because ladies, you live longer than men on average, so you, you are going to need Social Security benefits longer. And a lot of women are expecting spousal benefits too. So it's going to affect women probably at a higher rate than it is going to affect men. Social Security obviously has been a hot topic for Congress over the last several years. Actually, probably for the last 50 years it has been a hot topic in Congress, but it is something that they have continued to punt on. No politician wants to touch Social Security because for them it is likely political suicide. And what that means is that the train is barreling towards a brick wall. And unless something is done, there is going to be a day of reckoning very, very, very soon. And real quick, I just want to, want to go back talking about the new estimate of benefits being cut in 2034. That 23% is going to be about A$605 a month on average cut, which is a, little more than$7,500 a year for many people. That is a huge amount of money. And because Congress has continued to punt on the topic, it is going to be something that has huge ramifications for the entire country. There are currently, based on what I read, there are currently nine bills in Congress focused on addressing something with Social Security. And in reading through some summaries of each of those bills, I could only see two that are focused on trying to address the shortfall. One of them I don't really even think does. It's the Social Security Expansion Act. This one actually talks about increasing Social Security benefits by 20,400ars a year, but it talks about applying the Social Security payroll tax on all income above 250,000 to try and address further shortfalls. So again, that one still talks about increasing payouts. So that would just accelerate the depletion. The Medicare and Social Security Fair Share act is the only one that I could see that is focused on addressing the insolvency of the program. According to the summary, the bill says it would extend the solvency of Social Security and Medicare by at least 75 years by eliminating the cap on Social Security payroll taxes and increasing the net investment income tax, which supports Medicare by 1.2%, so up to 5% for taxpayers. Earning over $400,000 a year. I won't go into the nitty gritty of that second part, but the first part, the Social Security payroll tax, most of Social Security is funded by payroll taxes. And there's a cap on. It's about 170,000, if I'm not mistaken. And you pay FICA tax on that amount, and then anything over 170,000 and doesn't pay Social Security tax. So they're talking about getting rid of the cap on that. That would negatively affect high income earners. So it'll be interesting to see what momentum is gained by that act because, again, people don't like paying taxes. But it's like I said, there's a reckoning something is going to have to happen. All of the other bills in Congress right now focused on Social Security are related to, like, access. I know it was a huge point of contention recently. you can no longer call in. So they're trying to make sure that you continue to have various methods of accessing Social Security. And then data protection is another act that's. Or another bill that's in Congress. I think a lot of that was in response to doge. And then a lot of the others look to increase caps on Social Security taxes. So you actually pay a, tax on your benefit up to 85%. They're looking to increase the cap on that amount and all of that. Those would likely further accelerate the depletion of Social Security. So instead of it running out in 2033, we could see it running out as soon as 2030. We just don't know right now. But current estimates, like I said, it runs through 2033. So what is it that you can do? As much as we would like to hope that Congress is going to take action and fix the problem, one thing is for certain, it's not going to be perfect. Whatever solution, if a solution is found at all, it's not going to be perfect. And unfortunately, the longer they wait, the fewer options that Congress has to fix the problem with the least amount of pain. I don't know exactly what the solution is going to be. There's many different things that they can do. Raising taxes is obviously probably the easiest one to do that. I wouldn't be shocked if Social Security eventually has a freeze on it where they say, okay, in the, in this certain year, anybody 40 and above you will receive your Social Security benefits. Anybody below 40 you no longer will, and instead you're going to get enrolled in this different program. I don't know what that would look like, I know one option that could be floated is kind of a mandatory personal retirement retirement plan. So instead of paying Social Security income taxes, you that amount goes into a personal retirement plan just for you, but it's a mandated amount that you are told to put away. I don't know. Again, I don't exactly know what the solution is going to be. Unfortunately, a lot of this is out of the average person's control. So it comes down to what can you do for your own personal situation. Unfortunately, the answer isn't the best. The recommendation that I have is to start planning now. If you're somebody who is collecting benefits right now, you need to understand that that current amount that you're collecting may not last. It probably won't last if you expect to be collecting eight years from now. I highly encourage, if you have the ability to do so, start, you know, trying to make your budget fit within the reduced amount now. So you say, let me live off of 77% of my current benefit. I know for many people that would be extremely difficult if not impossible. But if you're collecting and Social Security is a large part of your retirement income, it's highly encourageable that you try and find a way to make your budget fit within the parameters that will be in place in eight years. If you're not collecting. So that might be somebody who is retired, but you haven't started collecting benefits or you're not retired, you need to start planning for your benefit to be less than expected. And that's something that we're currently doing with our clients. Now we're having that conversation and saying, hey, you may not receive that full whatever benefit you might be. So if you're expecting$3,000 a month now let's take a look at what it would look like if you rece received 77% of that. How does that affect your long term financial plan? We always take a look at the most conservative scenario possible. And in this case the most conservative would be saying all, right, let's expect you to receive 23% less in your benefit. Can you do that based on all of your other variables in your retirement plan? Because if we have a plan in place now, you can better weather the storm that might come your way eight years from now. And again, if the government has proven anything, it's that they'll proably not probably, I don't want to speculate in that, but they could possibly do something that causes the trust fund to be depleted even sooner. Social Security fairness, act again that was one example. They just signed off on it without any idea about how it was going to be paid. All it did was accelerate the depletion of the trust fund. If something else is signed into law that accelerates depletion, then we could be having this conversation in five years instead of eight. So my encouragement to anybody who hasn't yet start planning for a decrease in benefits now. And if this is something that is concerning to you and you want to talk about it, please don't hesitate to reach out. Shoot me a Note@westapril moneyincclarity.com or book a visit with me at, visitwithmc m.com. that's visitwithmc m.com. would love to sit down into discuss how a reduction in benefits could affect your long term financial plan. I hope this episode was informative. I don't want to be too alarmist, but I think it is important to have a candid conversation about this topic because it is something that is going to affect everybody and hopefully there's a somewhat good resolution to this issue over time. But again, I don't think we can look at it with a whole, lot of optimism. I think pain is going to be felt no matter what. It'll just be interesting to see when Congress decides to finally address the topic. That being said, I'll see you in the next one. Thank you.

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