Easan Arulanantham:
So we have a current event on so this week, it was published at Social Security cross who is going to run out one year sooner than expected. So 2034. So 2035. So what is what does it mean when Social Security is trust runs out of money? And should I be concerned about my Social Security? Or, you know, was like our happened?
Tom Vaughan:
Yeah, obviously, we actually got this question quite a few times this week, because the headlines came out, I guess, last year, because of the pandemic, Social Security collected less. And, of course, people are still retired and still, you know, out there collecting Social Security. So that trust, the Social Security trust, which was supposed to read out in 2035, might run out now in 2034. But let me describe some things. So just so you can kind of understand exactly what that means. There’s a lot of misunderstandings of how Social Security works. So essentially, so security is a situation where money comes in from people like us that are working, and it gets paid out to people that are retired, you know, between 62 and 70, you can start taking it and you can take it for the rest of your life. So you qualify for it. So what has happened over the last many decades is there’s more money coming in and going out. And they’ve actually been accumulating money. And that accumulation has been happening inside of this trust. So when they say the trust is gonna run out, that doesn’t mean so security’s gonna run out. And that’s a huge differential. Because if you look at the projections from Social Security department, even in, you know, when things do kind of fall back down, there’s still 80% of the money coming in, that needs to be, you know, paid out to satisfy all the requirements that are in the current group of Social Security recipients, and the projected group of Social Security recipients. And so it is not that so security is going broke, it’s that that’s trust is running down. And so that’s super important component. So really, worst case scenario, the trust goes down, they do nothing, they still have 80% of the money to pay out.
I think for the next nine years, the protection I saw from Social Security Department. Again, it depends on lots of different things. But But here’s the key thing, one of the things to understand, and I’ve gone to a lot of classes on Social Security, Social Security, has been going out of business since the 40s. If you look at article after article, it must be just fantastic, you know, readership on these things, because people are nervous about Social Security, they’re worried about Social Security. So you put out an article say it’s gonna go broke, and people read it. That’s been happening since the 40s. And so it hasn’t gone out of business. Matter of fact, the Trust has more money as of now than ever, than it ever had. So it’s quite easy to actually fix those security. In the end, politically, it’s tough. But the way that they’ve done it in the past is what I think will happen in the future. So if you look, my father got his Social Security, you know, he could get his his, what they call the full retirement benefit for retirement age, sorry, was 65. And so now, no matter when he took it, it was 65. And that’s an important component. For me, it’s 67. Right. And so what they did was that in order to make Social Security work better and have more money, and it’s worked, because there’s more money in that trust, they just moved the retirement age, the full retirement age out two years, they’ve made some adjustments to the cost of living increase, it’s not quite as good as it used to be, but still there. But that’s how they do it.
And so really, it’s pretty simple. Once that trust really starts to run out of money, there will be a lot more headlines, a lot more eggs, and somebody will step up and make a change. And so I would expect that younger people will their full retirement age might be older, 68 or 69. And maybe the cost of living increase gets adjusted even more for them. Historically, they have never messed with current Social Security recipients ever. They’ve always got kind of the deal with they’ve got other than you can make an argument that the cost of living increase has been slightly adjusted. But in terms of their payment, it has continued. And also historically, people that are very close to retirement don’t have any change either. So if you’re kind of 55 to 65 range, I’ve never seen that change either. So this is really the idea is we’re going to take younger people and make adjustments as far as that goes. And so you know whether younger people get the same retirement age, full retirement age and same cola is probably up for grabs. But that’s my outlook. You know, because one of the things that does happen is that fear of Social Security going broke clouds people’s decisions on when they should take it And oftentimes makes them think that they need to take it right away, even though that could be quite detrimental if they live long enough. So you got to be able to kind of really understand what’s happening with Social Security and how it works. And understand that, you know, politically, they can’t let it fail. And you know, it’s a lot of money, but the government has a lot of money. So this is something that could be fixed. And there’s all kinds of other solutions that they can look at. But just looking at the basics, I think this is something that can be fixed pretty, pretty easily. I think it will.
Easan Arulanantham:
Yes, good to know, I’m getting a little bit short on the stick with a deal!
Tom Vaughan:
Yeah, I’ve read some articles for people kind of your age ease and where you know, so my father was 65, for full retirement, I’m 67. You know, I’m a few years older than you. But you know, you might be 69 to get the full retirement age now, doesn’t mean you can’t take it at 62. And that will be the impact. That means you’ll actually get less if I take it at 62, I’m going to get less on a percentage basis, and my father was going to get because he was only three years away from full retirement age, I’m five years away, you might be seven years away from full retirement age. So taking it early will be even more detrimental than than waiting. But people are living longer. They’re working longer. You know, as far as that goes. So, you know, who knows, I mean, my plan is to work till age 75. So it doesn’t really matter to me, I don’t plan on taking Social Security until 70. Unless I have to unless something weird happens as far as that goes. But that might be true for you, too. So it still kind of works out. Theoretically, if you’re waiting till 70, you could end up in the same boat. Well, no, that’s not true. Good.
You know, they’re given that 8% per year growth every year after your full retirement age, plus the cost of living increase. So for me, that’s only three more years that I get to make that growth for my father as five more years. So he could get even more at 70. For you, it’s going to be one more year won’t be that big of a deal. So anyway, that so there are some ramifications, obviously to that. And you might get less out of that. But theoretically, you’re at a point in your life where you are young enough to kind of know that and that is one of the things they keep talking about. If we’re going to make adjustments, let’s make sure that the people that are young, younger, know what’s coming, so they can save more in their 401k or IRAs or whatever. to kind of make up for that survey show that most younger people aren’t expecting to get any Social Security. They’re going to get some Social Security. But maybe that’s a good thought process. It makes you save more. Nothing wrong with that.