What is the Future of Social Security?

As you head into retirement, it should be no surprise that your Social Security benefits will be one of your greatest assets. For some of you, the amount of money you’ll get out of Social Security could make your 401k look like chump change. However, what is uncertain is what is the future of Social Security? Keep reading to learn about some strategies and things to prepare for when it comes to your Social Security benefits, including a strategy that most people don’t even consider!

The Current Financial Health of Social Security

Every year, we’re hearing more and more about Social Security from politicians in Washington. That really isn’t surprising, since the fine print of Social Security statements says that without significant legislative changes between now and 2034, the government will have to significantly reduce the benefits of Social Security. We’ve even seen projections that have that reduction as high as 24-25%, which could mean an enormous haircut in your personal benefits.

We believe that there will be changes between now and 2034. It will be an increasingly important issue in politics as we get closer to that date, but there is no way to know exactly what will happen. What we do know is that the Social Security and Medicare system is strained. At REAP Financial, we consult with a lot of successful people who depend on Social Security, and we hear a lot of theories. Some believe the government will cut benefits in half, while others believe the system will stop altogether. Our experts don’t believe either of those will happen, since you end up paying a lot into the system during your working lifetime. Because of this, we believe the changes to the Social Security system will be more stealthy.

Key Theories: Means Tested Social Security & Changes to FICA Cap

Similarly, we guide many successful families through the Medicare process as well, and we see many of these families pay more for Medicare because they have a nice income. If you report higher income, you’ll have to pay more for the same Medicare coverage; that’s called “means testing.” This has been going on for some time, and it is one way for the government to make up some of the deficit. One theory of what will happen to Social Security is that they’ll begin means testing that as well.

Currently, on Medicare, the more money you make the higher premium you pay after you hit a certain threshold. They may do something similar on Social Security: they could look at what you make and once you hit a certain income threshold, decrease the Social Security benefits you receive. That outcome is very reasonable to consider and another reason you should be proactively planning your retirement income and your future tax bracket, not just for today but for the next 10-15 year time horizon. The way the laws are written in this country focus on your income, not your net worth. For this reason, you need to plan carefully for what your income will be as you move through retirement.

Another thing that is very likely: working individuals will pay more into the system. As of now, you pay 12.4% of your income into the FICA system; that’s 6.2% each from you and your employer, up to a certain amount. After you reach that certain amount, you don’t have to worry about paying FICA taxes anymore. We believe it is very possible that they’ll lift that FICA amount or completely eliminate the FICA cap.

Issues in the Social Security System

Under the current system, both of the theories we’ve discussed so far would be relatively easy to pass into law. They don’t seem particularly contentious and likely won’t cause rioting or picketing in the streets. There’s no doubt that the Social Security system has many issues. We are overall an aging population, which means more and more people are relying on Social Security benefits for their income. We have 11,000 Baby Boomers retiring every day, putting more and more people into the system. There is no doubt that the system is strained; that means you need to plan carefully to get the most out of your Social Security benefit, now and in the future.

At REAP Financial, we talk about how to get the most money out of your Social Security benefit. We have plenty of content that cover the remaining Social Security strategies that are very lucrative, available on our website and YouTube channel. As of now, the average Social Security benefit is $1,700 a month, around $21,000 a year. That doesn’t seem like a lot, but you have to remember that’s the average. Some people may have benefits up to $3,000 per month. A lot of that is based on how much you paid in and how many years you worked.

The Importance of Your Claiming Strategy

If you’re relying on Social Security as your single source of income in retirement, that is going to be an enormous gamble. If that is all you have to live on, you’ll be completely at the mercy of the government’s plan. Since the government controls how much benefit you get, cost of living adjustments, tax rates, and more, Social Security leaves you very little personal agency. That is why it’s so important that you save for your future retirement in different places, diversify your income, and diversify your tax situation. For example, many retirees get the bulk of their income from 401ks and IRAs which have never been taxed, so you need to have a plan to go alongside your Social Security.

This especially plays into your claiming strategy. You can take Social Security as early as age 62 or until the age of 70. Depending on your net worth, tax bracket, and type of money you have, the best time for you to take Social Security will vary. Many people like the idea of waiting until age 70, but that is not always the best move. For example, for more affluent people it can make more sense to take Social Security as early as possible, allowing for the highest possible net worth in the long-run. These decisions vary by family and should always be thought through carefully with a trusted fiduciary advisor.

Working with a Fiduciary Advisor to Maximize Your Retirement

It’s no secret that the Social Security system is strained. Even so, that’s not a reason to just start claiming Social Security as soon as you’re eligible. A lot of people believe they should get their benefit as early as possible to get the most out of it, but that is not a good claiming strategy. You need to have a Social Security analysis done, which takes into account all your assets to fine-tune your strategy. As we’ve mentioned, the most important thing is that you work with a fiduciary advisor who has your best-interests in mind. In most cases, fiduciary advisors are well-versed in investments, Social Security, Medicare planning, and more. You can learn more about working with a fiduciary advisor and why it’s so important right here on the REAP Financial website, so keep it here to dive deeper!

About REAP Financial – Your Austin-based Financial & Retirement Planning Team

REAP Financial is a trusted partner in wealth management and retirement planning, dedicated to serving the unique needs of high-net-worth individuals and families in Austin and Georgetown, Texas. Our team of experienced fiduciary advisors offers personalized strategies that encompass retirement services, investment management, estate planning, and tax mitigation. Acting as the CFO for our clients’ financial futures, we focus on preserving and distributing wealth to ensure a secure and fulfilling retirement. With a commitment to transparency and objectivity, REAP Financial provides tailored financial plans that align with your lifestyle goals and aspirations. Whether you’re seeking guidance on maximizing Social Security benefits or comprehensive retirement planning, our expert team is here to support you every step of the way. Contact us today to discover how we can help you achieve your financial dreams.

Phone: (512) 249-7300