Key Takeaways from 2 Myths About Social Security:
– No concrete changes have been made to Social Security yet. It’s not prudent to alter claiming strategies based on speculation about potential future cuts.
– The decision to claim Social Security is a “one-way door.” Hasty decisions should be avoided.
– Even if Congress does nothing, Social Security will still be 83% funded in 2035 just from ongoing payroll contributions, not 0% as some fear.
– The optimal Social Security claiming strategy differs for each person based on their unique financial situation, life expectancy, and other factors.
– Increasing investment risk to compensate for potential Social Security changes is not recommended.
– 66% of voters are age 45+ (either receiving Social Security benefits or approaching eligibility), making dramatic cuts politically difficult.
– Focus on what you can control: saving more, living below your means, and investing in a diversified portfolio.
2 Myths About Social Security – Timestamps
00:10 Current Concerns about Social Security
01:21 Planning Amid Uncertainty
02:39 Social Security Claiming Strategies
06:35 The one-way door
09:45 Debunking Social Security Myths
11:07 Political Realities of Social Security
2 Myths About Social Security – Links
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Link to JP Morgan “Guide To Retirement”
2 Myths About Social Security – Transcript
All righty. The question of today’s video is going to be regarding Social Security.
We’ve been seeing some, we’ve been getting some questions about Social Security and whether or not the potential cuts to Social Security should change any sort of claiming strategies or basically if we have any sort of information regarding what to do with Social Security with all these headlines about cuts.
They’re cutting staff and throwing out all different kinds of ideas. Should the recent discussion about potentially cutting Social Security change our strategy, or what else can we do to be prepared for that possibility?
I don’t think there’s a concrete answer here, but I think we’ve been hearing a lot about how this time is different and how this is unprecedented territory and how people are worried and concerned about Social Security and their financial income coming in. So, what are you guys thinking?
What are you guys hearing? I know we’re seeing the same things that everyone else is, but I know also that “this time is different” are the four most dangerous words when it comes to finances and looking back at history, what are you guys thinking here?
I think the plans of even the wealthiest people that we’ve met involve Social Security coming in on a monthly basis and this has the potential to impact everybody. From every part of the spectrum, across the United States.
When I’m thinking through plans for people, if I have to incorporate Social Security into the plan in some capacity, nothing has changed yet, so we can’t plan, we can’t incorporate any numbers, nothing has actually changed.
Until we get any sort of details about what could potentially change and in what capacity, it wouldn’t be prudent to make any sort of actual changes to the plan.
We work with the numbers and the rules and the guidelines that we have currently, those are some of the assumptions that we bake into our plans, you know, tax laws currently as they are today. They could change in the future.
We don’t know what they would change to. Tax laws will change, right?
Exactly over a 30-year retirement, they’re going to change, but like you said, we have to make some assumptions about the future and the best place to start is with what’s happening right now.
I think with Social Security, I mean, I’ve been here almost 12 years and I’ve been hearing that things are going to change with Social Security pretty much the entire time.
Whether you want to put stock into “this time is different,” until it actually changes, I don’t really think that there’s much to do.
You can kind of keep it in the back of your mind, but if you’re thinking about it for people that are retiring today, there are so many different possibilities of what they could do, like what the changes could end up being.
How do you even begin to think about what you could change your strategy being? And then for people that are retiring down the road, we still don’t know the changes and there’s not much you can do about it.
You kind of just have to get there and adapt when it’s your time to claim. So there isn’t much to do.
I’ll also piggyback on what Tim is saying is that there are things that we should worry about that are within our control. If someone’s going to change Social Security at some point in the future, really out of our control.
There’s not a whole lot that we can do about it. We should be worrying about what we can control and not things that we can’t control.
Personally, I kind of like the Rip Van Winkle approach and this is what we say to our clients. Pretend you’re going to sleep for 20 years and just ignore the news because I think you’re going to be a lot happier and have a lot less stress in your life if you stop reading the headlines.
And I think if people are thinking about, OK, if I can’t control Social Security, what can I control to maybe reduce my dependence on Social Security in retirement? It really depends on where you are in your work cycle, career cycle, earning cycle.
If you’re getting close to retirement, getting close to claiming Social Security, there might not be that much you can do to change your financial situation in a meaningful way to really decrease your dependence on Social Security outside of potentially just spending less money, which is really hard for people to do.
All the things that we would recommend people do are all the things that we already recommend people do, which is save as much as you can, live below your means, have invest in a diversified portfolio. I was going to say I think the one thing we wouldn’t recommend people do to try and counteract Social Security is to increase your investment risk.
You’re trying to out-invest the potential, you know, trying to earn more with your investments so that you don’t have to depend on Social Security that much. Don’t do that.
That’s one thing that I could say that’s not a reason to start putting your foot on the gas with your investments, especially for changes that we don’t know what’s coming, we don’t know and what variation. People say that there are cuts or the pool’s going to run out at some point in 2034 whatever the date is.
There are so many different ways if that ends up happening that they could adjust it. Is it going to be for just new filers going forward?
Is everybody that’s claiming currently already grandfathered in, or are they going to cut everybody’s spending? In 1983, we were told that the Social Security trust fund would be out of money by 1989. 35 years ago.
I think it speaks more to if you are worried, I think it’s just know your numbers, go through the planning exercise and see how things look, you know, maybe you’ve run one without Social Security and that says maybe you work 2 or 3 more years.
But I think it’s just you need to know your situation and go through the planning process to know the different levers that you can pull.
I agree that I do not think it would be wise or prudent on our behalf to make any sort of recommendations based on potential cuts that could happen. I just kind of wanted for us to talk about it and share our insights here because it is something that we’re hearing from folks.
Social Security is a huge topic of conversation in every planning exercise that we do, just kind of wanted to talk everything over with you guys. I think it’s come up in every single planning meeting that we’ve had this year so far.
It’s definitely something that’s on people’s minds and it’s worthwhile to talk about. One thing I constantly say to people is that Social Security, the decision to claim is a one-way door.
So you can’t go back, once you make the decision. We just want to make sure that everybody has the most information possible before they make that decision.
Like you said, it’s a lever that you can pull. So making some sort of hasty decision about Social Security is the last thing that you want to do.
I mean, we’re hearing of people who want to accelerate pulling that lever from before it changes. I mean what a cost.
Unbelievable. I mean, it’s very expensive to do that.
And when I say very expensive, do you guys want to just kind of walk through the penalty, so to speak, if you decide you want to file at 62?
Yeah, you can claim at 62. But full retirement age for most people is 66, or 67. So that’s when you will get your full benefit. You could also continue to delay until age 70 and that is a (nearly) a guaranteed rate of return of (almost) 8% per year.
Each year that you continue to delay, you get an increase in guaranteed income for the rest of your life. Obviously I think a lot of the numbers say that the longer you can wait, the better, but I think you have to factor life expectancy into that as well.
If you, for whatever reason, if your life expectancy is less than 77, I’m going to be referencing a slide from JP Morgan’s guide to retirement here. We’ll get it up on the screen.
If you expect to live beyond age 77, or if you expect to not make it to age 77, then claiming at 62 is probably the best bang for your buck. But if you plan on living past age 81, which average life expectancy of a married couple says that there’s at least a 90% chance of that happening, then you should really wait until at least your full retirement age of 67.
What else am I missing? I think I covered all the basics there of that slide.
I think it’s important to mention that every single person’s financial situation is probably going to dictate a different outcome. How many times have we heard people say, “well, my buddy filed early, I think I should be doing the same.”
Or, “you know, I really want to wait until I’m 70. But the math just doesn’t math, you know?”
It needs to work.
And that’s what we do, whenever we analyze a retirement plan, we’ll be able to come up with the optimal Social Security claiming strategy if you are a married couple, you know, maybe your spouse claims earlier the highest earner continues to delay until after their full retirement age to capture that guaranteed rate of return.
It’s going to be different for everyone, but our job is to present the numbers and what your maximum benefit would be. So, you always have to take that into consideration.
Can we just spend a minute talking about that slide in the JPMorgan presentation about debunking the myth because I think this is actually important.
The first myth is that younger workers will get nothing from Social Security.
What we’re looking at here is the amount that will be funded in 2035.
That’s 10 years from the date of this recording, right?
The Social Security fund or the trust fund old age survivor and Disability Benefits Trust Fund will be 83% funded just from ongoing payroll implications.
That is, if Congress does nothing, if things continue to stay as they are.
For people that aren’t retiring until the back half of the 2000s here, that number is going to decrease to 73%, but it’s not like it’s going down to less than 50% or 0%. It’s still going to be mostly funded with just ongoing payroll contributions to that.
I keep hearing that Social Security will be out of money by 2035. I just think that you got to dig into the numbers and what we’re seeing here from this chart is that that is a myth.
So the second myth here is, I should take my benefit now because it might be cut later.
This chart here basically just shows the age of voters in 2022.
The main majority of voters here, 66% are older voters, these are voters between age 45 and 65 or 65 plus, and ages 45 to 64 is 36% of the voting block and then 65+ is 30% of the voting block.
So these are people either already receiving Social Security benefits – or on the cusp of receiving Social Security benefits in the next two decades.
I think that just goes to show that people, Social Security is something that people care deeply about and that the voting majority or the most powerful voting blocks are people that are thinking about Social Security.
Don’t know how they’re actually going to vote, but unfortunately, this is the group 2/3 of people who watch the news and maybe getting fed a lot of different lines, also true, yeah.
But I mean, if you’re 2 years away from claiming Social Security right now and you’re thinking about this, what can you really do about it? Are you going to stop paying into Social Security because you don’t want to give them more of your money because you’re not going to be able to get it back out?
It doesn’t work that way. I’d love to opt out.
Exactly, yeah, I’m going to politely decline to give Social Security my this. Please don’t take it out of my paycheck, right?
I kind of wanted to talk about it. I know people get antsy watching the news and they want to hear from us and I think we shared our feedback on that, but you know, nothing really to do, just kind of dig into the numbers and understand your options.
There aren’t really any good options here, but as always, if these anticipated changes come into effect, then our will change and we’ll pass that along to the clients, so. That’s all I got.
