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What Every Investor Should Know About Planning And Saving For Retirement

I want to talk about a question that we get asked here all the time.

Is Social Security Going Broke? 

If you’re getting close to collecting Social Security or maybe if you’re already collecting Social Security, this may be a question you’re thinking about as well. So, in today’s video I’m going to talk a little bit about a report from the Social Security Administration about the current status of the Social Security system. And I’m also going to talk about some ways that could potentially be out there to fix the Social Security system.

First of all, according to the summary of the 2016 Annual Report from the Social Security Administration, to quote it, they say, “Both Social Security “and Medicare face long-term financial shortfalls “under the currently scheduled benefits and financing. “Lawmakers have broad continuum of policy options “that would close or reduce the long-term financing “shortfall of both programs. “The trustees recommend the lawmakers take action sooner “rather than later to address these shortfalls.” They predict that the combined trust funds will be depleted by 2034.
 So when you read that, it sounds a little bit scary that Social Security is running out of money and the Social Security Board of Trustees is pushing lawmakers to make some changes to correct that situation and help Social Security create some more long-term viability.

So, what happens in 2034? Well, what a lot of people may or may not necessarily realize is that Social Security has been a pay-as-you-go system. In other words, the taxes that are collected from workers that are currently employed go to pay for benefits for the workers that are retired. And even though there is a Social Security trust fund, that money is not necessarily just sitting aside in some bank account that the government has. Because up until recently, those surpluses have been used to fund other government programs. In other words, the government has actually been spending that money. They have been keeping track of that, though. So, according to that report, over the Social Security’s 80-year history, it’s collected roughly $19 trillion in tax revenue from workers, and they’ve paid out roughly $16.1 trillion in benefits to those workers. So that leaves about $2.8 trillion in this so-called trust fund. But really what that is is more of an IOU, so that’s money that basically is owed by a different part of the government. So in 2034, when those trust funds run out essentially, according to the Social Security Administration report, they have enough tax revenue coming in from existing workers to cover about 75% of benefits to the retirees.

So, getting 75% of what you thought you were going to get isn’t acceptable to most people, and I don’t think it’s acceptable to the Social Security Administration as well. So there is a lot of talk and a lot of things that are actually even currently being done right now to help shore up Social Security and help create some long-term viability. So what are those things?

Well, one of the things that happened here recently, in 2015, they passed, and the 2015 Bipartisan Budget Act, and what that did was eliminate two Social Security filing strategies, the file and suspend strategy and the filing of the restricted application which is being phased out here over the next couple of years. So that’s one thing they’ve done to kind of clean that up a little bit, help create some long-term sustainability there.

The other thing that’s happening right now is there is a cost of living, as many of you know, on Social Security benefits. And one of the things that’s being talked about is potentially changing the index that they use to give you that cost-of-living adjustment. So, what that would do is potentially give you a lower increase over your lifetime of Social Security benefits. And even if we looked back over the last decade or so, there’s actually been three years out of the last 10 years where there’s been a 0% cost-of-living adjustment. In other words, there’s no increase in Social Security benefits, and then even last year, there was only a .3% increase. So according to Social Security the average retiree got about a $5 per month increase in their Social Security benefits for 2017.

One of the other things they’re talking about possibly is they could tax Social Security benefits more for people that are already collecting. So as you may know, up to 85% of your Social Security benefits are subject to tax. I think that would be something very easy to change that from 85% to 100%. That would also help bring a little bit more revenue into the Social Security program.

The last thing that they probably could do here for existing workers is they could do some type of a means testing. In other words, take a look at how much people may need that. If people that maybe have more income coming in or have higher retirement savings account balances, they may reduce some of the benefits for some of those people, do a little bit of means testing there.

So for the workers that are still putting into the system, that maybe have some years yet to start collecting Social Security, how do we plan for that? Well, one of the things that’s been happening, has actually happened, two major time periods here, but they’ve changed the full retirement age for getting your full Social Security benefits. It started off when Social Security was created that your full retirement age was age 65, then they raised it to age 66, and now for anyone born after 1960, that full retirement age is 67. So very easily, because people are living longer, they can raise that from 67 to 68, some people have even talked about raising that for younger workers all the way maybe as late as age 70, before you’re eligible for those full Social Security benefits.

The other thing, and this is something that’s actually affecting a lot of people right now is raising the payroll tax. So, as you know, if you are employed, you are putting money into the Social Security program every pay period, every year you’re putting money into that. You’re putting in 6.2% of your wages into the program, up to a maximum, for 2017, $127,200. So, up to that amount you’re putting 6.2% in and then if you’re employed, your employer’s also putting in 6.2% for a total of 12.4. If you’re self-employed, you’re paying the whole thing. You’re paying 12.4% of your wages up to that $127,200 limit. So the interesting thing about this is that this number for 2017 is about 7.2% higher than it was last year for 2016. Last year you were only taxed, the Social Security taxes up to $118,800. So if you think about that for a minute. So they gave retirees a .3% increase in their benefit, but they raised the amount that you’re taxed on for people still working by 7.2%. So not quite even there. And that’s something that they can continue to do, they don’t even have to vote on it in Congress, they could just keep that going. So that’s probably one of the most likely things that can help to shore up the Social Security benefits. And if you think about Medicare as an example, 100% of your wages are subject to Medicare taxes. So it’s even a possibility that for people working, you could end up paying higher and higher amounts towards those Social Security benefits. your Social Security benefits. So if you haven’t already, download that. It’s got a lot of great information in there, and I will look forward to seeing everyone back here in our next video, thanks.


What I Do

I help individuals make the transition from working to retirement.

As you approach retirement you will be making some of the most important financial decisions of your life. Most of these decisions don’t get a do-over, once you’ve made them your stuck.

My goal is to help you get the most out of your retirement resources. I do this by coordinating and optimizing what I call the 7 Core Elements of Retirement Planning.

It all starts with a plan!

We use advanced financial planning software to help you understand your retirement cash flow so you know where the gaps are.

Understanding your retirement gap is the foundation to getting the most out out of your retirement resources and avoiding costly mistakes.

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