Social Security Benefits to Run Out Faster Due to Social Security COLA Increase, Ep # 277

Welcome back to a new year or Retirement Starts Today Radio! Just as you have been envisioning your retirement, I’ve been envisioning exciting new things for this podcast.

This year we are kicking off a couple of new additions to the show that I’m particularly excited about. After the retirement headlines, we’ll have our new Lead Financial Advisor, Bret, join us as an occasional co-host for the listener questions segment. In addition to our original segments, you’ll hear from listeners like yourself in our new personal development segment.

On this episode, you’ll hear the latest news on the Social Security front, I’ll answer a question about the best investment options for mid-term investments in a retirement portfolio, and one listener, Frank, will describe how he is investing in his health to improve his retirement. Make sure to stick around until the end to hear the latest addition to your second favorite retirement podcast!

Outline of This Episode

[2:12] The number of American retirees is outpacing the number of workers
[3:52] There are really only two ways to solve this problem
[10:15] My thoughts on claiming Social Security
[11:40] The best investment options for short and intermediate-term assets
[17:39] Frank is proud of exercising every day in retirement

Social Security funding problems continue to worsen

This week’s retirement headline comes from InvestmentNews.com and explores the latest issues concerning Social Security funding in light of the recent COLA increases of the past couple of years.

While the fact that Social Security benefit expenditures are outpacing the money coming into the fund isn’t news, the fact is that American retirees are growing much faster than the American workforce and the latest COLA increases have only increased the problem.

In 2000 there were 3.4 workers for each beneficiary and in 2030, the United States is projected to have 2.4 workers for each beneficiary. This continued growth has created an imbalance that coupled with the recent raises in benefits is putting the Social Security revenue stream at risk of falling short sooner than was originally projected.

Raising more revenue is one way to solve the funding problem

There are essentially only two solutions to the Social Security funding problem: raise more money from workers, pay less to beneficiaries, or do some combination of the two.

One way to ensure that Social Security benefits continue for another 75 years is to raise the payroll tax rate by 1.7%. One particular congressional proposal would be to have the payroll tax turn on again for those that earn $400,000 and up while at the same time creating a minimum benefit of 25% above the poverty line.

This plan would provide a guarantee against poverty for the elderly while staying true to the original intent of the Social Security program as a social safety net to our most vulnerable citizens.

Another way to solve the funding problem is to raise the taxable wage base by including contributions to employee health insurance to produce more revenue into the Social Security system. This idea could reduce the 75-year deficit by about ⅓.

Reducing benefits is another way to ensure Social Security’s continuation

On the other side of the coin is the idea of reducing benefits. One way to do this is by raising the full retirement age to 69. The original retirement age was 65 but was increased to 67 after a 17-year adjustment period. This initial change resulted in a 12% reduction in benefits. One complaint against further raising the retirement age is that it would be unfair to workers with more physically demanding jobs.

The last idea presented in the article is increasing benefits for lower earners while decreasing the benefits for higher earners.

Unfortunately, none of these options are popular with the public so they are not something that congressional leaders can run for reelection on. Listen to my thoughts on Social Security and how it could affect your retirement plan.