Could Social Security Actually Run Out of Money?
Ray Lucia show. And that is where I want to begin today. A brief discussion about social security starting with a brief history. And then we'll get into some of the other issues that I think are also important at least as it relates to your retirement is a social security and insurance policy or can it be treated as an investment? We'll cover that. Dr wait vows done a great job of this going back to two thousand fifteen he wrote a brief history of social security. There's no way I could do it Justice without stealing from his stuff. So I will. But he points out a couple of things that a lot of people neglect to realize and that is that social security benefits that are not just for retirees there's benefits for disabled workers. Spouses, young children of deceased or disables worker disabled workers spouses survivor benefits. It was not always that way. Remember, another original social security act of nineteen thirty five and it created retirement benefits. Only four the retired worker became eligible at age sixty five those ages have now changed to sixty six or sixty seven depending on how old you are. Right now. Younger millennials. Of course, we'll have to wait until they're sixty seven. My full retirement age is sixty six for social security purposes. Now in one thousand nine hundred eighty nine congress, then passed amendments to extend benefits to spouses and minor children. And this is what happens in politics. Once you start giving away benefits. The giveaways expand. I'm not suggesting that's bad. I'm just suggesting that it is a fact of life. And now, it's become a major problem. The nineteen seventy-five social security trustee report estimated that the old age survivors disability insurance trust funds would be depleted by nineteen Seventy-nine magin that we're in two thousand eighteen and it was a problem and seventy seven congress enacted amendments to deal with the impending financial problems. The amendments increase the payroll tax increase the amount of income eligible for the payroll tax and reduce the benefits slightly this fixed. The problem until the economic slowdown of the early nineteen eighties which meant the trust fund again faced a serious short term. Funding problems is starting to sound a tad bit familiar back then Alan Greenspan, who has you all know was the longest serving. Federal Reserve chairman. Headey commissioned to examine the problem in nineteen eighty three. The Greenspan commission called for and then congress subsequently passed into law a gradual increase in the full retirement age from sixty five to sixty seven as I just mentioned. They also increase the social security tax rates. And now, you know, where we stand today social security charges twelve point four percent. Medicare, of course, charges two point nine percent. Those numbers are split evenly between the employee and the employer. Meaning that if you are both yourself employed. You have a fifteen point three percent bogey on one hundred percent of your income up to nearly one hundred and thirty thousand dollars. Think about that one. You make one hundred and thirty grand any get clipped by fifteen percent of that ten percent will be thirteen thousand at another sixty five hundred dollars six thousand nineteen. Hey roundup. It's twenty thousand bucks in it increases every year with a little inflation. Bob. Think about a self employed one hundred and thirty thousand bucks twenty grand right off the top only half of which is income tax deductible. Is one of the reasons why we talk so often about incorporations and defined benefit plans. And all that stuff back. I've got an Email on that very subject. I'll go on it should come. As no surprise says Dr foul that funding shortages will happen again at some point. Social security. United States is meant to be a pay as you go. Meaning each generation of current workers pay for the benefits of current retirees three trends will make this task increasingly difficult despite the presence surpluses and those surpluses are dwindling. Sorry I had to get a slug of caffeine. I the baby boomer cohort is of unprecedented size and is currently reaching traditional retirement ages. Yeah, that's me. I should be retired. But I'm not gonna do it. Well, I'm sort of semi. Although it doesn't feel like semi. Although I, you know, I take a couple of days off here in a couple of days off there. But I'm still pretty much working. And that is the solution, by the way, keep working. Anyway, let me move on. Because this is interesting stuff. Second life spans are becoming longer. Meaning retiring baby boomers will have long retirements. That's right. Third fertility rates are decreasing during night of the baby boom women were having between three and a half and four kids on average during their lifetime. The thousand fifteen trustees report expects the long run for tilde rates, the United States to be just to know words, rubbing half as many babies, therefore that's half of many working stiffs paying for those of us that are theater, theoretically, getting a social security benefit. In two thousand there were four workers per retired beneficiary this had fallen to three and a half workers by twenty fourteen. And it's predicted that two point six contributors per retiree. By twenty thirty and other words for every retired person two and a half people have to go to work to pay for that person that is unsustainable with recipients of disability benefits added in they expect that number to drop the two point two percent for every working person that gets social security benefits. There will need to be two people working. Now.