Are you skeptical about whether Social Security will be there
for you or your children?
Well, here to talk to us about that and many
other things is Dana Onspot from Sensible Money.
Dana, welcome. Hi, Bob. Looking forward to this contentious topic.
Yeah, it's contentious. A lot of people are sort of
skeptical.
They've read perhaps media reports from the
2024 Trustees report that says,
among other things, that there'll be a 21%
drop across the board for a schedule benefits in just
nine years.
And a lot of folks are wondering
what's going to happen to Social Security?
Is it going bankrupt? Will it be there for me?
And everything else that goes along with that.
Yeah. And, you know, that's completely understandable,
especially if you are close to retirement.
You are relying on Social Security in most cases for,
you know, a pretty substantial portion of your retirement paycheck.
And so I think being skeptical is part of our
human nature.
And I started in this business in
1995, nearly 30 years ago.
And I can tell you
from day one, I had people tell me that they
were sure that Social Security wasn't going to be there
for them.
They were they wanted to run the retirement plan as
if they got nothing from Social Security.
So I've, I've encountered that for for over 30 years.
I know sometimes we think today it's a louder voice
than normal.
And because of the trustees reports that are coming out,
it's certainly in the news more than it was.
But you know, that skepticism has been there all along
there.
There's always people that are going to be skeptical.
And I think some of it can simply come from
our political views, the types of media we consume.
I have seen people follow certain views to such a
degree that it almost becomes a cult
and it can hurt the way they do their retirement
planning.
For example, I've seen people move
100% of their money to gold at at the wrong
time.
Or I saw someone about two years ago go entirely
to cash and pull all their money out of every
financial institution because they thought that the dollar was,
was about to collapse. And so,
you know, I think you just have to be aware
of where is that skepticism coming from?
And then really understand, you know,
how the system works and,
and legislatively bring some realism to your perspective to understand,
you know, why it's, it's unlikely in my view that
the system's going to go away.
And it's also, I think incredibly unlikely that we're going
to see this Cliff
drop in benefits in nine years.
I, I think Social Security is here to stay.
And, and I know that's what we're here to talk
about.
Yeah. So, I mean, take us back in time.
There was a, a good degree of concern in the
19,
early 1980s and then which led to the Greenspan Commission,
where Social Security was facing a similar sort of eventuality
that it was going to be the trust fund was
going to be depleted
and benefits would be cut.
And back then, they decided to,
among other things, raise the retirement age,
but maybe give us a sense of history and how
we compare and contrast to then.
Yeah. You know, clearly I,
I wasn't paying attention to Social Security in
1983. I'm sure it was in the news quite a
bit.
And we didn't have social media the way we do
today.
But the system was in trouble at that time.
And so my understanding when you go read,
there's actually a history of Social Security page on the
ssa.gov website, which is, you know,
if you're somewhat of a retirement income geek,
kind of an interesting read to go through and and
understand it.
And they talk about this,
this time in history, and it was supposedly just a
few months before the system was going to hit that,
you know, insolvency point. And insolvency again,
doesn't mean that the trust fund was 0.
It simply means that the money coming in was now
less than the money going out.
And so they enacted a series of changes.
They slowly raised through full retirement age.
So now we see a schedule where full retirement age
gradually goes up.
If you were born 1960 or later,
your full retirement age will be
67. And they also added in a formula that taxes
a portion of your Social Security benefits.
And then I believe over the years,
I can't remember if this change was made at that
time,
if they actually raised, you know,
a portion of our wages that were also subject to
Social Security withholding. I know there have also been changes
where,
you know, the inflation adjustments.
So currently our wage base goes up with inflation.
And I can't remember if that change was also enacted
at that time.
But it was a series of fixes that said,
OK, if we enact these changes,
that will allow the system to be solvent through.
It was 50 years and it was considered a 50
year fix.
And that takes you right to
2033, which is when the trustees report currently says we
will once again be at that point where,
you know, money coming in,
it does not exceed the the money going out.
And the challenge becomes, will there be
any impetus to act before we are a few months
out from that event?
And, you know, we would like to see Congress act
sooner it it would bring some clarity for all of
us in retirement planning and for the numerous people reaching
retirement age today. But I don't know politically if that's
going to happen until we're right on the cusp where
where somebody forces it to the surface.
Yeah. So I think back to
1983, I was in my 20s at the time.
So raising the retirement age,
you know, for a 20 year old didn't really affect
my planning at all,
quite frankly, nor did I think about it at all
back then.
And the same is true,
I think today where whatever changes take place would probably
affect millennials and subsequent generations versus those who are on
retirement doorstep because the impact
isn't planned for perhaps or the impact on the millennials
is that much less.
I mean, it's, I think of it like retirement planning,
right? If you wait till a week before you retire
and try to do your planning,
you're not going to have many options.
But if they can make some changes now,
those are going to be small changes that I may
notice if my full retirement age goes from 67 to
68, for example. But it's not going to derail my
retirement.
When you have enough time to plan ahead,
some of the changes they could implement today
aren't going to derail or completely destroy
someone's, you know, planned retirement.
One of the challenges becomes and,
and one of the reasons why I think Social Security
is here to stay is when you look at the
system,
if we didn't have Social Security,
according to one report that's out there,
nearly four in 10 adults that are 65 and older
would have incomes below the poverty line.
And so if they were suddenly to come along and
cut Social Security by 20 or
25%, well, you're going to force a lot more people
into that poverty level.
And that then becomes the
government's problem again. And so there's already a system in
place.
They simply need to shore it up.
When you look at how Americans in general feel about
the system,
nearly 80% of them oppose cuts to the program.
And then when you look at how we rank against
other developed countries,
we're actually in the bottom third in terms of how
much of an average wage earners wage the system replaces.
And I don't think we want to go even lower
on that list.
So I think there's all kinds of reasons why the
the
system will be fixed if if we want to call
it that or where the tweaks will be made that
brings it so that,
you know, full benefits will be paid.
I don't think we're going to see a just this
sudden clip Cliff drop off of oh,
Oh my gosh, yesterday I was getting,
you know, this amount and
the next day I'm suddenly getting
25% less. But I do think we could see again,
a series of changes like what happened in
1983. And they're likely to impact me and you know,
generate Gen. Xers and and certainly the millennials and younger
generations.
So to me one of the interesting things about the
trustees report is that they're always looking at
the 75 year horizon and looking at things like economic
data,
demographic data, disability data, etcetera,
etcetera. How much weight should,
how much weight should we put in this 75 year
projection?
And if at all, you know,
I, I think it's the best we have,
right? So, you know, I put a tremendous amount of
weight into the retirement projections we do for clients and
they're very effective as
a set of guardrails to keep people on track.
And so I do think you need to put weight
on it.
I know you and I had both read the update
from the Center for Retirement Research and,
and they have a great outlook on it and offer
some perspective.
And one of the things that they said was that
this year's report actually showed a small improvement over last
year's report.
So that was kind of interesting.
And they go into why.
But another thing they said is that the last four
trustees reports show the largest deficits we've had since
1983. And so that is cause for concern.
And that's why if we can get Congress to act
now sooner rather than waiting the nine more years,
you know, it would bring certainty for all of us.
And of course, maybe the media doesn't want that.
Then what are we going to talk about?
Yes, the media does need something to talk about.
I, I, I also think is it worth putting into
perspective this notion of when Social Security was created in
the 1930s,
it was meant to be a safety net,
not to be the primary source of income for retirees.
And what we see today,
at least according to the stats I've seen,
is for certain income quintiles represents an increasingly larger portion
of the retirement income.
In the lowest income quintile,
it's 85%. And then the highest income quintile,
Social Security, may only be 15%
of someone's retirement income. Do we need to sort of
Start Stop thinking about Social Security in the averages and
look at it by quintiles or other measures that are
more sort of discreet?
You know, I think it's important to to keep that
in mind.
You know, the latest stat that I had read said
that for people receiving Social Security 65 and older,
for men, it was 37%
of them Social Security composed
50% or more of their income.
For women, that number is higher.
Social Security composed 42% of their
not 42% of women who receive Social Security,
it is 50% or more of their income.
You know, if 50% of your income comes from Social
Security,
you are likely in one of the the lower income
demographics.
Or the reason you see it affect women more is
often they were staying home and so they're receiving the
survivor benefit.
They may not have qualified for their own benefit,
but that survivor benefit is is a large chunk of
their income.
It was never intended to be a sole source of
retirement.
So, you know, if you're relying on it as such,
then yes, you would need to,
to rethink your retirement planning.
If the nature of your question is,
do we think they might segment the system and implement
some changes on,
you know, the higher income earners,
It's possible, you know, there are things
such as inflation adjustments that they may determine to,
to change. I, I think politically it's unlikely.
I think some of the same changes we've seen before
in terms of raising the,
the tax on our earnings,
in terms of adjusting the retirement age,
in terms of the portion of Social Security benefits that
are taxed.
They may decide if your income is over a certain
level,
100% of your Social Security will be taxed.
Right now it's 85%. All of those changes are possible.
None of those changes are going to
derail someone's retirement. That would be the key thing to,
to, to understand. Now, if you want to plan as
if these cuts are going to happen,
you can certainly run your retirement projections that way.
So you could run a projection and say well under,
you know, if, if no cuts happen,
here's what my Social Security benefits will be,
I'm going to assume I only get 80%
of that and then I'm going to run my retirement
plan.
I mean, worst case is you're just going to save
a little bit more or,
you know, they've the the system implements some changes and
you're going to go,
great, I can retire a little earlier or,
or have a little more income than I had planned.
Yeah, in the Boston College report that you mentioned,
they, they note, they note that delay has real cost,
that the longer we wait,
the more drastic the measures have to be.
And I'm wondering if Congress doesn't act,
there are other countries that maybe we could follow suit
And,
and for instance, Canada has what
automatic
adjustments being made so that they don't go into a
deficit.
It does. I read that and my husband is is
Canadian and,
and so I don't know that we necessarily want to
pattern too many things after Canada.
But I thought in that report it was very interesting
how they have built in this mechanism that basically says
if changes aren't legislated,
then by default this is going to happen to keep
the system solvent.
And you know that that would be a wonderful welcome
addition to any changes that we do implement.
Like we know we have to change something,
so why not program it in so that we have
some level of certainty going forward?
I mean, we are constantly talking about this potential for
retirement crisis and people have undersaved and,
you know, I think it can be hard to
get serious about your own retirement planning when you have
the Social Security system out there and the can just
keeps getting kicked down the road.
Right. You want to see
you want to see that taking priority and people saying,
yeah, we're serious about giving people certainty so that they
can have a sense of direction.
And I think that can be a building block that
then goes,
oh, OK, now, you know,
we see that they took action and it becomes easier
for us to plan ahead and and plan with some
certainty.
So building some kind of automated mechanism in for the
future would,
you know, in my view be a welcome relief and
and help.
I mean, it would help bring about retirement certainty for
everybody.
So as you're describing that,
I'm thinking of the word mandate and I'm thinking of
a dear friend I had who before he retired
would rail against big government and entitlement programs and whatnot.
And by the time he retired and went on Medicare
and had to get some heart surgery,
he couldn't stop boasting about how great Medicare was.
So maybe the mandate and it didn't work before retirement,
but it certainly would work after retirement for some.
It depends on your perspective.
Perhaps
it doesn't. And Bob, I've had the same experience with
numerous clients over the years who,
you know, were absolutely adamant that they were never going
to see a penny of Social Security and then,
you know, completely grateful once they actually retired and,
and would even tell me,
I can't believe I'm really getting this much.
And, and so yes, perspective definitely changes depending on what
stage of life we're at and,
and what we're experiencing.
You know, I really like the,
it's called the Center on Budget and Policy Priorities.
And it's an article called Policy Basics Top 10 Facts
about Social Security.
That is a great place to start.
And I'm sure you can link it under this video.
And then the Center for Retirement Research at Boston College
has Social
Security's financial outlook, the 2024 update and perspective.
I think that article is fantastic.
If you really want to learn more,
I also think just be aware,
you know,
a lot of the headlines we see are designed to
garner clicks.
You know, that is how the media industry works.
The more people that click,
the more people that see the advertising.
And so when you can see,
you know, when you see alarming headlines that that,
you know, make it sound like the the trust fund
is about to run out or an imminent danger,
we do need to act.
I agree with that, but
the nature of those headlines is to stir the pot,
right? That is the nature of it.
So reading some things that are a little bit more
research based,
when you talk to people in the industry,
most of us are on the same page.
We don't think that that this Cliff drop in benefits
is going to happen in nine years.
And so that can can bring a perspective.
And also, you know, like I said,
if you are really concerned,
you just run your retirement projections as if you're going
to get 80%
of the benefits. And that can be a good way
to kind of not get caught up in it.
And then just plan, right?
Just plan as if, OK,
if it's not there or if I get less,
I've already accounted for that.
Yeah. I mean, ultimately when you're planning,
you're trying to remove as much uncertainty as possible.
So planning for a worst case scenario is probably the
best thing you could do.
Absolutely. You know, in retirement,
we are always planning for the worst case.
You know, everything we look at is
around, well, if we get a major bear market,
you know, if this worst case things happen,
we still need to know your retirement plan is OK
and that that's the way you want to approach it.
Yeah.
Anything we we've missed, Dana?
I don't think so. You know,
hopefully we've brought some reasonable thinking to this issue.
And if there's anything people can do,
it's to reach out to your legislators and tell them
that this is important and that you would like to
see them act quickly,
not in nine years.