On this episode of the Ready for Retirement podcast, James discusses the question: Will Social Security run out? In the aftermath of the economic impacts of COVID-19, many people are concerned by the new budget model predictions that purport that the Social Security trust will be depleted sooner than expected. There are many factors to this prediction, a considerable one being the high unemployment rate at this time.
It is important to remember that Social Security was created in 1935. The average life expectancy was 60 years old and Social Security was intended to be a social safety net for those people who lived longer and were unable to work to earn a living wage. The current life expectancy is 79 years old, the birth rate is declining, and 10,000 Baby Boomers are turning 65 every day, but the Social Security system has not changed much to accommodate for these factors.
The short answer is that Social Security will not run out of money, but the longer answer is that while there will always be a flow of money as long as there are people working, the amount of benefits could be drastically reduced unless some things change. A few key areas of changes could be increasing the ages of drawing Social Security benefits, incorporating a means test, raising employment taxes, and increasing or eliminating the wage base.
Finally, in response to the question of if people should consider collecting Social Security earlier than normal to ensure the highest benefit, James says that this is not a compelling enough reason. If you collect Social Security early, you are not only limiting your pre-retirement earnings, but you are also limiting the benefits you can receive. For more information on this topic, listen to Episode 6 of the Ready for Retirement podcast.
Key Points:
- The problem with the Social Security system
- Created in 1935, when life expectancy was 60 years old (now it is 79)
- Was created to be a social safety net
- 10,000 Boomers are turning 65 every day
- Declining birth rate
- Created in 1935, when life expectancy was 60 years old (now it is 79)
- Is Social Security going to run out of money?
- No, but benefits could be reduced
- Suggestions for sustaining the Social Security trust and benefits
- Push ages back
- Means test
- Raise taxes
- Increase the wage base
- Should I collect Social Security before I usually would to get full benefits?
- Not a compelling enough reason
- If you collect early, you limit your earnings before retirement
- By waiting, your benefits will increase
- Listen to Episode 6 of the podcast for more on this
Timestamps:
0:59 – New budget model predictions after COVID-19
2:15 – The problem with the Social Security system
4:12 – Is Social Security going to run out of money?
5:52 – Committee for a Responsible Federal Budget
7:17 – 4 suggestions for sustaining the Social Security trust and benefits
13:23 – Should I collect Social Security before I usually would to get full benefits?
Resources
Episode 6 – Should You Collect Social Security As Soon As You Retire?
Social Security Wage Base History
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