Is Social Security Running Out of Money?

2.2.23: Audio automatically transcribed by Sonix

2.2.23: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Val Majewski:
Welcome back to the Federal Retirement Show. I'm your host, Val Majewski with American Benefits Exchange. I really do appreciate you taking the time out of your busy schedule to join us to watch this episode. And really, I encourage you to go back and look at all of the previous episodes as well, because as you may or may not be aware, we put this show on for you, the federal employee who's tuning in so you can learn as much as you can about your benefits, retirement situation, options that you have available, uh, answers to questions that you may have. We we have several episodes where we've answered frequently asked questions that we get because we speak with federal employees like you on a daily basis. Uh, I don't claim to know everything, but certainly know a whole lot. In my decade plus experience working exclusively with federal employees when it comes to benefits and retirement education. Today is based on a question or a series of questions that I've gotten asked by different clients when it comes to Social Security. Now, Social Security, there's a lot of fear out there. And where this came from, the question that was asked was, hey, is it true that Social Security is going to run out of money? And, you know, that's easy. We see a lot of, uh, you know, fear out there that Social Security is going to be running out of money.

Val Majewski:
We've talked about this kind of before, but I don't know, is it true? And I'd rather hear directly from the government itself than making up my opinion. So what I'm going to do today is I'm going to read some excerpts from the 2023 Social Security Trustees report, and we're going to see for ourselves what they are saying. Now, this is the, again, Social Security trustees report from 2023. And they come out with this report usually on an annual basis, and they're giving you kind of the status of Social Security. It's a very long report. You can probably find it online. I'm sure a lot of people don't read it. You can certainly see this and read it for yourself. I'm going to read you some excerpts from it, and we're going to go into it. And then we're going to talk a little bit about, you know, your options with Social Security. As I've said, we have other episodes that we've talked about, Social Security, but this is the first time that I want to answer this question directly about whether or not Social Security is going to be running out of money, and when that would happen. And what is Social Security saying about it? What is the report saying about it? So again, we're going to dive into this trustee's report, read some excerpts, give you my commentary, go over kind of a situation. And if you have questions, if you said, well, that's not true or where does it say that? Or you just want to go over your own retirement benefit situation, including Social Security, reach out to us.

Val Majewski:
How do you do that? You go to our website dot Federal Retirement Show. Com fill out the form. We'd be happy to reach out to you, whether it's myself or one of our reps across the country, to do a full benefits and retirement analysis and even get you a copy of the book I wrote on benefits and retirement called There's No Excuse. So like I said, these are excerpts directly from the Social Security Trustees report. So here's what it says under the trustees intermediate assumptions OSD, which stands for Old Age Survivors and Disability Insurance Cost, is projected to exceed total income in 2023 under the dollar level of the hypothetical combined Trust Fund. Reserves declines until reserves become depleted depleted in 2034, one year earlier than projected in last year's report. So what does that mean? This is towards the beginning of the report, but it's basically saying that it's projected the the funds that both are for beneficiaries and for regular beneficiaries and for disability beneficiaries. Combined funds looks to be depleted in 2034, one year earlier than last year's report. So the 2022 report had going until 2035. What does that mean? If it's saying they're going to be depleted one year earlier? Well, exactly what it says that Social Security, those funds that are meant to send beneficiary payments or they're actually claim payments, right.

Val Majewski:
Because this is it's called insurance, old age survivors and disability insurance. Oasdi. If you ever see that on your pay stub, those benefits, those claim payments and the funds that fund those payments could be depleted by 2034 if there aren't any changes made to Social Security. So it's assuming that everything stays the same. When are the funds going to run out? They're telling us 2034 okay. So to illustrate the magnitude of this, there's another excerpt, right. And they base this on a 75 year actuarial projection period. So they look at the 75 year period going forward. Are they fully funded for that 75 year. Again, you can look at this in the report, but it says a tax rate increase of 3.44 percentage points up to 55.84% beginning in January 2023, would help reduce the the deficit. Right. So it just means that they're looking how are you going to fund something that's going to eventually be depleted? You're going to have to ask for more contributions. Now, what are the reasons for this? Well, there are a lot more beneficiaries for Social Security. We're talking about baby boomer generation. There's a lot more people that are becoming Social Security eligible. There's also there's also not as many people being born as there used to be. Right. So the baby boomer generation, people were were booming with having kids now not as much.

Val Majewski:
So birth rates are down or birth percentages are down as far as how many, uh, kids each family is having, which means ultimately there's going to be less people in the workforce contributing to Social Security, more people receiving Social Security. So the benefits that are being received are not enough to sustain the benefits that are being paid out. Now, you can also look at longevity. People are living longer. Benefits are going to be paid for longer duration. But all that being considered, there's not as many people that are, uh, coming up contributing to Social Security than those that are eventually going to be receiving Social Security. So we'll continue at the time of depletion of these combined reserves, continuing income to the combined trust fund would be sufficient to pay 80% of scheduled benefits, 80% of scheduled benefits combined. So just to the regular beneficiaries, the Oasi Trust Fund reserves are projected to become depleted in 2023, at which time the oasi income would be sufficient to pay $0.77 for 77% of every dollar of Oasi scheduled benefits. So what does that mean? Again, they're telling us that based on their findings and their report, that the fund is going to be combined funds be depleted in 2034, but just the OAC, the ordinary benefits, not the disability benefit beneficiaries, but the benefits going to the regular beneficiaries of Social Security, the amount available at at that time, 2033, would be sufficient to pay 77% of the scheduled benefits, 77% of the scheduled benefits.

Val Majewski:
That's a little scary. Now I know, look, you're not hearing this from me. This isn't my opinion. I'm reading directly from Social Security Trustees report, and I highly recommend you can go check it out. You can find the PDF online. So it's talking about and there's other things in there about again birth rates and the reason why the families, uh, have less kids nowadays than they used to. Trustees recommend here's here's one of the last things that we're going to discuss. Before I go into an example here, the trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually, and give workers of beneficiaries time to adjust to them. Implementing changes sooner rather than later would allow more generations to share in the needed revenue increases or reductions in scheduled benefits. Social security will play a critical role in the lives of 67 million beneficiaries and 180 million covered workers and their families during 2023. With informed discussion, creative thinking and timely legislative action, Social Security can continue to protect future generations. So what are they saying? They're saying that not only do they want to increase contributions, increase payroll taxes, increase the the benefits that are being paid into the program, the sooner they do that, the more people are going to continue to pay into this.

Val Majewski:
Right? So if they're saying less people are in the workforce because less people are being born, more people are turning 62 and being eligible for Social Security, well, the sooner you enact it, you're going to get the people that have not yet turned 62 paying in a little bit more. You're going to get the younger folks paying in sooner so that you're going to be collecting more benefits. The longer you wait, the bigger that gap is going to be, and the quicker those benefits could be depleted, or the more drastic the action is going to have to be down the road to right the ship. So I say it again, if they started sooner, then maybe it could be a gradual increase in. People may not feel it as much, um, and it'll just become the norm. Or if they wait, delay, delay delay delay. Then when they do take action, it might have to be a little more drastic and and really affect the younger generation. So imagine you're a new Fers employee okay. You're not the traditional Fers employee. So if you go back and you look at our information, our episodes where we talked about Fers retirement, a typical Fers employee, original Fers employee, I'll call it traditional Fers employee puts in 0.8% towards retirement, 0.8% a new hire. If you were hired after 2013, you put in 4.4% towards retirement.

Val Majewski:
That's just the Fers. Social security is currently 6.2%. So not only are you now as a Fers employee, younger Fers employee putting in more towards retirement to get out the same, you may be asked to kick in even more to Social Security in order to do this. Now there's another thing in here too, and I don't know if this would ever occur happen because there'd probably be, you know, a lot of animosity. But there's two solutions also going forward that they talk about in this report. And without reading directly from it, I want to summarize. They say you can either make a change to the benefits being paid. Let's assume that the benefits are going to get depleted. Right. And there's not really a solution to contribute more. Or if they even if they contribute more, at some point they may have to alter benefits. And how much is being paid out. You can either alter the benefits of just those going forward that will start to collect Social Security. So if you've gone to Social Security's website and have received the Social Security estimate, your estimate would then and you're not yet 62 or Social Security eligible, your estimate would probably be decreased. Okay, that's one way to look at it. For those that will enter Social Security down the road, we're going to reduce your benefits. The more drastic option is to say we're going to reduce benefits across the board.

Val Majewski:
So that way everybody shares in it, including including people that are already receiving Social Security, already receiving Social Security. So I hope that that's not the case. But you read the report, that is an option that's being discussed. So it's a lot of pages. Trust me. It doesn't read like a like a children's book. You know, it'll kind of make you if you want to fall asleep at night, if you want to read this and you will be a little more drowsy. But if you find the details, you pay attention to the details that are in this report. You can see in plain English what they're saying. And Social Security, they said, could be depleted by 2023, 23, 2033, 2034, which is a year earlier than they projected last year. So it doesn't look like things are improving. In fact, it may have gotten a little worse. So how does that affect you? And what are we talking about then it comes down to Social Security timing and when you decide to take it. As most of you may know, you're eligible to take Social Security once you turn age 62. Social Security's full retirement age is anywhere between age 65 and 67, depending upon your birth year and the latest you can delay receiving Social Security benefits is age 70, and that is basically your maximum payment.

Val Majewski:
Now, for each year prior prior to your full retirement age, you will see a reduction in benefits of about 6.25%. So if your full retirement age was age 66 and you decided to take it right away at age 62, excuse me, you're going to see a reduction of about 25% of your benefit compared to what you would get at your full retirement age at 66. Now, the opposite is true. The longer you wait beyond your full retirement age, the greater your benefit will get, and you'll see an increase of about 8% per year for every year going up to age 70. When do you want to get your money? Now or later? There's a lot of different schools of thought, and there's a lot of different techniques and things that you can utilize without going into all of them here. I highly recommend that you fill out that form on our website, Federal Retirement Show.com reach out to us, we'll reach out to you. We'll go over your full situation, but answer your specific questions about Social Security so you can decide when the right time to take benefits. Is. Now the only way that we can be 100% accurate and know which is going to be the best benefit for you, meaning you're going to collect the most from Social Security over your lifetime is to know the age or year at which you're going to die.

Val Majewski:
Now, none of us have that crystal ball. We don't know when that time will be, so we need to make the best educated guess. Now, unfortunately, I'm going to say this in a nice way. Unfortunately, a lot of federal employees that we talk to are not in a position to have a choice when it comes to Social Security. Why is that? Because they have factored in to say, I need Social Security, 100% need to take it as soon as I'm eligible or as soon as I retire, because they are counting on that. As a major retirement income source, we don't want you to 100% rely on Social Security because even their trustee's report is telling us it's not reliable in the long run. So what if what if you can plan properly and almost over plan to the point where Social Security is not a necessity, but it is an extra benefit. It's a bonus. So if you planned to retire, retire comfortably, and Social Security hasn't even taken into effect, awesome. When you do receive Social Security or choose to turn that on, you will now have bonus money in your pocket and your bank account. But I would say plan, especially if you're younger. Plan as if Social Security is not going to be a major part of your retirement income. That way when you get to retirement, if it's still there and look, I hope it is, it better be there because we've been paying into it.

Val Majewski:
But let's just say the worst happened. And just hypothetically, right, think think about this. Let's say it's not there. I'm not saying it's going to be let's say it's not there. Well, I want to still plan and prepare without it. And if it is again bonus money, your future self is not going to dislike you today for planning ahead and preparing or over preparing for retirement. So look, take a look at that Social Security Trustees report. Um, you can see all these excerpts that I'm talking about. It's a very long report. I just pulled a couple paragraphs out of there that I think we pertinent for our conversation, but learn about it, understand how it could affect your retirement income, how it can affect your retirement strategies. Talk to us. Go to our website, Federal Retirement Show.com. Fill out the form. We'll do a full benefits and retirement analysis. Make sure you're on track. Make sure you're as prepared, if not over prepared for retirement for your future. I encourage you go back and look at our previous episodes. There's a lot of information for you. Check it out. It's there for you. If you have any questions, let us know. Again, thank you for taking the time. My name is Val Majewski with American Benefits Exchange, and I look forward to seeing you on a future episode. And.

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