Social Security Shortfall Could Cost Couple $1 Million

You’ve all probably heard the concerns around Social Security and the estimates with Social Security benefits potentially running dry in 2030. The concern though, is these are just estimates. Now I believe we have a lot of smart people in the government, but the reality is they don’t really know exactly when this date is going to happen. So far in 2024, they’ve changed this estimate at least two times on us where it was 2033, then 2035. The problem is we really need to be planning around this event, today. There was a recent study that came out looking at a millennial couple that was in their early 30s, looking at what was the impact would be if they lost 21% of their Social Security benefits. And the number today was about $908K they would lose, as far as lost income. If you think about that as an asset though, we just took your net worth statement, which is assets minus liabilities and subtracted roughly $1M from that, that’s kind of a pretty dramatic impact on how your retirement looks. We really need to be thinking about what can we be doing today, to offset that risk. That doesn’t necessarily mean that’s just for millennial couples. That could be someone that’s into retirement. Someone already collecting Social Security or maybe 30 years away from retirement. The key is we want to be thinking about proactive decisions to tackle this event and not necessarily just rely on policy makers. We look at Social Security and we have other videos on this. So I’d encourage you to check out our YouTube channel to have more information on some of the ways to fix this. But there’s really three main things that have been talked about in how to fix the Social Security shortfall. The first one would be increasing money going into the system. Well what’s been talked about is potentially uncapping the Social Security tax and having more tax revenue go into that. Another thing that has been talked about is potentially delaying the full retirement age. I often joke with clients that my full retirement age is probably going to be 77 or 80 by the time I’m actually going to be able to get benefits, if there’s even going to be something there. Then the third option would be the worst case scenario, they do some sort of cutting of benefits. Which is what’s being kind of projected out there right now. The reality is those three decisions aren’t very favorable to anybody. And look at politics in general, usually the first thing they do when they get elected to office is try to get reelected. Meaning, I don’t see this being a huge concern until we get really close to that time of the event where benefits are going to be reduced. It doesn’t seem like it’s much of a priority mainly because the ways to fix it are more unpopular opinions. When you think about those three ways, you’re either going to affect cash flow today. Which they certainly don’t want to do because we’re in a high inflation environment or they’re going to impact cash flow later by either reducing or pushing away when we can collect our benefits. So what I encourage you to do is again, it doesn’t really matter where you are in this retirement planning process is have different retirement plans that you’re working off of. So as an example, my wife and I, we really have kind of three retirement plans that we have. We have a sort of goal post. One with full Social Security benefits. Which we only really look at when we want to feel good about ourselves. Because the numbers look much better than the other two. And then we have another one that’s a worst case scenario. What if we have no retirement benefits from Social Security? That obviously puts a lot of stress on our other investments. But that tells us is, well here’s what we need to be doing today. We’re likely going to have something in the middle, but we really don’t know. You know, Social Security I believe personally, it’s not really ever going to go away. It’s a tax system. So as tax revenue is going into it, it’s going to continue to pay benefits out. However, we do want to think about if that’s reduced and again we have a $1M potential loss in our investment accounts, what is the investment impact of that and how do we project out to what we need to be doing today to solve for that? And so we want to start to think about is again, building out those retirement plan scenarios. Practice off the worst case. Think about what do we need to do today from a savings standpoint? You know I get it. We’re all experiencing this high inflation. Groceries are really expensive. Maybe you don’t have the cash flow to increase savings. Well from there then let’s figure out well, maybe we need to have a different investment approach. We need to look at maybe alternative investments, almost create our own pension strategy through different annuities. Maybe have more of a dividend focus. Trying to have a little bit more yield generating in the investment portfolio. Of course, it always comes back to your risk tolerance. But again, we’re just trying to be proactive in addressing this issue. The biggest thing I would encourage you, don’t wait on this. Don’t rely on policy makers to fix this for you. To look back over the last few years and look at the debt ceiling as an example, they keep kicking the can down the road. It doesn’t seem to be getting addressed very quickly. But it is something that’s going to sneak up on us if we’re not prepared today could have a huge impact on how our retirement looks. So if you don’t know where to start with this, I would encourage you to reach out to us. We have some different tools we can use with you to identify risk tolerance, identify what’s the right investment approach, but more importantly, create those different retirement plan scenarios. Really stress test those. That’s going to allow us to figure out what do we need to be today to go solve this. Again, check out our YouTube channel. We have lots of different resources out there around asset allocation and around different Social Security strategies as well as other ways to offset this risk. But in the meantime, please feel free to reach out to us. We’d be happy to connect to discuss in more detail.