Planning Beyond Social Security
Freddie: Social Security has long been a cornerstone of retirement planning, yet many wonder if it'll be there when you need it. Join us this week as we dissect the current challenges facing Social Security and discuss how retirees can plan for a future where reliance on this program may shift.
Hello, and thanks for joining us for this episode of Leibel on Fire! I'm Freddie Bell, and I'm with Leibel Sternbach. He is the man. He is Amazon's bestselling author of Living with Financial Anxiety, and also the author of the book Authenticity. He also has a website, and we'll get into more of that a little bit later.
It's yields4u.com, and I want to introduce the man, Leibel Sternbach. Hello, and welcome back.
Leibel: Hey, how are we doing today? Hey.
Freddie: Unbelievable. And Social Security. A lot of times I have a difficult time saying those two words, but it's such a big piece of a lot of retirement programs. It's been a cornerstone of retirement planning.
Yet a lot of people wonder if it'll be there. What are your concerns with the long-term viability of Social Security Leibel?
Leibel: So, the long-term viability of Social Security well, let's put it this way, I don't think when I'm ready to retire and collect Social Security it probably will not be similar to the program that still that will exist at that point
probably will not even be a pale reflection of what it is today. Social Security has a fundamental flaw built into it and It was something that they were aware of when they designed the program. But there were kind of checks and balances put into it. And you know what Congress did what Congress does, which is they raided the piggy bank and they removed all the safeguards and they protected their personal interests at the cost of future generations. And so, when Social Security was first established, it was based on several premises. Number one was that it was not going to be the primary retirement income for most people, right? That was number one.
It was designed to keep people out of poverty. That was its only purpose was we had workers who would work their entire life and then they would get to a point where they could no longer physically work and they were their families couldn't support them, right? So, they were being you know, they were becoming homeless, and nobody wanted these homeless people who had served the country their entire life to be out, you know out in the streets in the cold without food. And so, the government came up with a program and in a lot of ways it was to combat communism because communists said well we're good.
We take care of our workers, right? We're for the people. We are not for we're not for personal gain, right? It's all for one and one for all. And we're going to take care of you. And so, FDR came up with the Social Security program as a way to combat the influence of communism in America and to create a social safety net, right?
To do kind of yeah. come somewhere in the middle somewhere between communism and capitalism and provide a safety net but it was designed to be a safety net not a retirement income plan. And it was also designed on the fact that the average life expectancy was 65 at the time so most people would be on the program for five, maybe seven years, and then they would die very nicely, right?
They had the good graces of not living to 100 as we have 10 percent of Social Security beneficiaries living beyond
Freddie: My how things have changed right?
Leibel: How things have changed. So first you had most people at that point in their lives were, you know, for the most part invalids because they worked very hard jobs.
They had serious health issues as the result of those jobs and they just needed, it was really money to provide for their family so that they weren't, they didn't kick them out and they had money to pay to take care of them and feed them. Over the years, that program has expanded, and people have started living longer and longer and it in the benefits that corporate America provided shrunk more and more.
So, it used to be corporate America provided pensions for life. My wife is still lucky enough to be covered but somewhat by a pension for life as you know being a as having been a state employee and you know I'm lucky enough to work with plenty of federal and state employees who have pensions for life who make more of their pensions that I have ever paid as a W2 employee?
And It's always interesting to see that but the corporate American, most Americans were not covered by that. 85 percent of Americans are employed by small businesses and small businesses couldn't afford. They really can't afford to keep paying someone who's no longer producing value for the company.
And so, then came along the 401k programs were a way of shifting the value proposition of we're going to pay you for life to, we're going to help you save for retirement. And Social Security, God bless. But fundamentally, the flaw in the program of Social Security is that it relies on two things to be true.
Number one is it requires that more people are paying into the program than are receiving benefits. Fundamental in the math, it requires that. Number two is it fundamentally requires that the money that is being put into the program is being used, is being invested and is growing. So that during your working years, the little bit of amount of money that you put in that you save is going to turn into most of the money that you're going to be withdrawing during your retirement years.
And that the amount of money that isn't covered by that is being covered by the additional employees that America has created that are paying into that program. Unfortunately, both of those things are not true. They were very nice design features, but the first problem is that we didn't invest the money, right?
We, what we did was in an effort to, to shore up the budget, Congress in their great wisdom, put two caveats on the trustees of the Social Security trust fund. They said, you can only invest the money in federal agencies or the federal government. Okay, so essentially, they said this money that should have been invested and should have been growing is you're just going to give it back to us.
We'll give you a small interest rate, but you're giving it back to us. All right, so that's number one. Number two is they also said is they can borrow against that to fund wars and whatever other, you know, whatever flavor of the month program they decided to run. So, they've depleted that trust fund.
That's what's supposed to be there for us in the future. The second problem is that the generation that is retiring right now is the largest generation in American history and we are not replacing them. Not only are we not replacing them, right? But you are our population growth has shrunk. We are facing a population crisis in 2050 that the only possibility of offsetting that population crisis is with immigration So all of this, you know yeah, things aboard controlling the borders and building walls is, you know, it's a little bit of a red herring.
Yes, we need to have legal immigration, but our legal immigration needs to be greater than what our illegal immigration has been. Otherwise, we're going to be facing a real crisis of all we're going to have is a country of old people who can't afford to do the things that they need in order to survive, right, which is what Japan is facing.
Freddie: So, talk about the role then it sounds like you said it at the beginning and we know this about Social Security that we talk about the role that personal savings, pensions, investment portfolios and the like play into us having a stable retirement.
Leibel: Yeah, so what we need to understand is that Social Security is not going to we can't count on Social Security being there for the long run.
However, you scared the
Freddie: heck out of me about that.
Leibel: Yeah, it can't. It's not gonna be there. You know, 20-30 years down the road, Social Security is gonna have to cut the checks that it's making even they're estimating even, you know, within seven years, they're gonna have to cut right. And the headlines that we see are that the trust fund is going to be depleted and then they're only going to be able to pay out based on the payments coming in right?
So that means that you know, they're not going to be able to supplement that. Checks will be cut by 20 or 30%. That's what they're estimating. What that means to us as retirees as people who are counting on Social Security to be part of our retirement income is that number one, we need to plan?
We need to plan for Social Security to not, you know, that the Social Security is going to be reduced at some point. The question is whether it's going to be reduced, you know, in the beginning of our retirement or at the end of our retirement, that is up for grabs, but we need to have a backup plan, right?
And Social Security cannot be our own only plan, which means that a certain amount of our money right cannot go towards current income. It has to go for future growth. It has to be used to offset that late those later years in life where maybe we're going to have to pay for someone to come in our home and take care of us whether we're going to have to pay for a nursing facility or long term care or assisted living or replace Social Security when Social Security is decreased.
Now, yeah realistically speaking, right? I can hear all the I can hear all the people in the comment section talking about the fact that Social Security is not going to go away. They can't afford the votes, right? They can't afford to lose the votes and you're a hundred percent, right? Right Social Security is not they're not going to do anything.
That's going to look like a reduction of benefits There is never going to be a politician at least in the next 30 years who comes along and says we need to reduce Social Security benefits because they will not get re-elected Right? What they will do and what they have done for the last is they have reduced benefits to new beneficiaries and they've done it in ways that people don't understand.
So, for instance, a few years ago they passed something called the Deemed Filing Rule. Deemed Filing Rule says that if you file for one benefit, you're deemed to have filed for all your benefits. What that effectively did, and nobody understood it at the time, other than a handful of geeks like me, was they were reducing the amount of total benefits that someone could receive because prior to that someone would receive benefits and they would file for their spousal benefits and then suspend their own benefits and allow it to get delayed retirement credits. And then once they got the full delayed retirement credits and it grew to a much larger sum, they would file for that which allowed them to receive about 30 to 40 percent more So Congress reduced benefits by 30 to 40 percent by saying, we're closing a loophole that people were taking advantage of.
No, it was a benefit that they were entitled to that you took away and nobody was savvy enough to understand it when you told them that they were, that you were taking it away. Right? Because they were able to frame it as we're making rich people who are taking advantage of the system, not be able to take advantage of the system.
So, I think they're going to reduce benefits in ways that we won't predict, and it's gonna be on future beneficiaries. I think they're gonna reduce inflation increases. So, it's not Social Security just won't keep up with our expenses. You know, that $1000 that we're getting today is, not going to go as far when I was a kid.
They did that. I remember very vividly that there were my neighbors who were living on Social Security and they just became livid because Social Security made some adjustment and people went from being able to pay for their rent to only being able to pay 50 to 60 percent of their rent with their Social Security check and it was because of inflation and how Social Security recalculated the inflation adjustment.
So, I think those are the things that we got to worry about.
Freddie: Well, that's going to keep me up at night, but we're just about out of time, but I'm just really curious. It seems as if that it's crucial to start planning now, even if Social Security is completely intact. What can we do to start taking steps today, Leibel, to make sure that we're not caught off guard for the inevitable changes that are coming?
You've made us aware of that. Yeah,
Leibel: no matter what Social Security reductions are happening, the question is, when is it going to happen in your lifetime? I think the thing that you got to do is number one, you got to be constantly updating your financial plan. You got to be determining when is the ideal time to file for Social Security.
You also got to be considering whether filing earlier so that you don't get swept up in those future changes, right? Because the way congress is going to make these changes is going to be for future beneficiaries. And so that is one of the non-financial arguments of why you should file early.
It's not because you want to get more money. It's because you want to lock in the rules that we know what they are today because they're very unlikely to change rules on existing beneficiaries. And then you've got to make sure you have a financial plan that with or without Social Security, right?
That it's, you've got that safety net so that if Social Security is not going as far down the road, you have a way to protect yourself.
Freddie: That makes a lot of sense. And you can also go to Yields4U.com for additional information.
Leibel: Yep. Yields4U.com. We've got a whole lot of information about this.
We've got a webinar that we do on Social Security on a regular basis. We've got tools for trying to figure out when to file early, file late. And again, I highly recommend you take us up on that free retirement tax law analysis because that is where we take a look at that and figure out for you specifically filing early filing late with your spouse when should you file and what gets you the most money and the most safety margin in your retirement plan.
Freddie: He's Leibel Sternbach. I'm Freddie Bell and that's all the time we have for this deep dive into Social Security and its future. Whether Social Security evolves, or you need to learn or lean more heavily on your personal savings. We've learned today that proactive planning remains the key ingredient in all of this.
