Getting the Lowdown on Social Security (Part 1)
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Episode 026 Summary:
Are you ready for all things Social Security? On this episode of Retirement Equals Freedom, Host Josh Bretl is starting off a 360° look at this federal program that touches the lives of just about every retired American. (We promise, it’s exciting!)
This jam-packed show is focused on the system’s history – from how it got started to how its parameters have evolved. Established by President Franklin D. Roosevelt at the height of the Great Depression, as Josh says, “Social Security is a beast of a government program that has a huge impact on almost everyone’s lives.”
Along with Co-Host Dave Schmidt, we’re learning about why more people than ever are relying more heavily on their Social Security checks over longer periods of time (thanks to the evaporation of pensions and increasing lifespans).
Josh ponders how the Social Security system may be reformed – but never entirely replaced – and emphasizes the importance of strategizing about when to tap your benefits and how to supplement your income if that traditional “three-legged stool” retirement plan turns into a bicycle (tune in and it will all become crystal clear … along with a national need for an Alf reboot).
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This episode was fueled by Cometeer Coffee, both iced and hot!
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Welcome to Elmhurst for one of the pod’s No. 1 fans: Dave’s dad.
Updates on Josh’s home reno, the listening habits of wives and whether to #TikTok.
Social Security is going to have a multi-episode arc because it’s something that basically everyone has to deal with – and wants to deal with in the smartest possible way!
Misconceptions, unknowns and fears: Josh is here to give you the basics, starting with the history of Social Security! (#TaxNerd #SocialSecurityNerd).
The roots of the social insurance program that came to be known as Social Security:
- Conceived as part of President Franklin D. Roosevelt’s "New Deal."
- The idea was to ensure that every worker contributed to a fund that would pay out and protect them in their older years.
- Signed into law in 1935 and rolled out in 1940, the age of eligibility was set at 65.
- The age of retirement was set based on the expected lifespan of an American male, which was 62 in the 1940s.
- The average American didn’t live long enough to collect Social Security when it was first instituted.
A snapshot of the trend among workers paying into versus beneficiaries drawing on Social Security:
- In the early days, 46 million workers contributed taxes while 1.1 million collected payments, about a 42:1 ration.
- With most people not living long enough to collect (or dying within a few years of eligibility) the program was at the outset structurally sound!
- Today, however, the average life expectancy for an American male is about 78. And if you reach the age of eligibility, you’re likely to live to 83 years old.
- The ratio went from 42:1 in 1945 to 3.7:1 in 1970 to 2.8:1 in 2013, the last time the Social Security Administration posted numbers.
The number of people collecting today is threatening to outstrip the number of people paying in and those who are collecting are also doing so over longer periods of time.
Josh believes that people in their 40s today can count on Social Security. Beyond that? The program will remain, but probably look different. Josh predicts:
- The age of eligibility will likely be pushed back to 70 or older.
- FICA tax contributions will no longer be capped at $150,000 of income.
Can someone who is well set decline Social Security? Josh hasn’t seen it and anyway recommends taking the funds and putting them to use for a good purpose.
Stats from Erin:
- In 2022, Social Security will replace 37% of earnings for the average 65-year-old.
- The average Social Security benefit in 2022 is $1,614 per month – or about $20,000 per year. Double that for a married couple.
- About 20% to 25% of the U.S. retired population relies on Social Security for more than 95% of annual income. You can’t take that level of benefit away from such a large percentage of the population without a massive social shift!
It takes a “pretty sizable asset” to replace $20,000 or $40,000 of income! You need to have good options figured out, which will be the focus of a future episode.
When we start tapping Social Security impacts a multitude of other financial planning decisions and impacts.
Social Security and the “three-legged stool,” which traditionally included three streams of retirement income: Social Security, personal savings and pensions. Problem is, fewer and fewer people have pensions anymore, thus creating an income gap.
Time for “Let’s Get to Know Josh and Dave”: What did your 15-year-old “self” imagine you’d be doing right now?
- Dave: Already into cooking, he was planning his first two restaurants and taking cooking classes.
- Josh: He was already heading towards finance, having had a glimpse of his father’s career and lifestyle. Prior to that? He was going to be an umpire in the summer and a chef in the winter.
Did you know that statistically it’s harder to get to the major leagues as an umpire than as a player? It’s true! The Bureau of Labor Statistics says so!
Dave Relates to Retirees (Josh is taking a cleansing breath): There are direct parallels between Josh and Dave’s friendship and the history of the Social Security system. The bond between Josh and Dave started out great but went off the rails when Josh “had the audacity” to go off to college. It messed with their friendship ecosystem in the way that increased longevity has messed with the Social Security system! But just as the Social Security Administration will eventually adapt to today’s longer lifespans, Josh and Dave will find a way to protect their friendship’s delicate alchemy. Josh weights in: Much like Social Security, Dave poses challenges but is absolutely irreplaceable and must remain a seamless part of life!
Apropos of classic 1980s sitcoms: The No.1 thing that clients want is clarity and simplicity. Think the opposite of “Alf,” the alien TV character who was asked: "Why must you needlessly complicate everything?"
“At least your wife hears you edit these (podcasts). I don’t think Missy has ever heard any of this, unless you’ve shown her a clip.” ~Josh
“Social Security is going to be a multi-episode topic because it’s so important. It’s one of those things that everybody has to deal with ... an integral part of everyone’s retirement.” ~Josh
“There’s a lot of misconceptions and unknowns about Social Security. People get afraid of it. They don’t want to make the wrong decisions.” ~Josh
“Social Security was a way to take care of retirees when they got older.” ~Josh
“Social Security might be the single biggest tax change we’ve ever had. It’s a very social program for the greater good that everyone pays into.” ~Josh
“The average American didn’t live long enough to collect (Social Security) and if they did live long enough, they’d collect for two years and drop over dead.” ~Josh
“(Social Security) was structurally sound … but things changed. People lived longer, medicine got better, life expectancy increased.” ~Josh
“You and I, we take care of ourselves … We’ll be playing basketball at 100!” ~Dave
“The Ponzi scheme doesn’t work quite as well because we have less people paying in for those who are collecting and they’re collecting for a heckuva lot longer.” ~Josh
“The government knows that it has to fix (Social Security) in some way, shape or form so they will get there!” ~Josh
“(My customer at the bank) hated the way I looked, but I won her over with my charm later. Believe you me!” ~Dave
“Social Security is a beast of a government program that has a huge impact on almost everyone’s lives.” ~Josh
“There’s not a pension anymore, so that leaves Social Security and your own personal savings as the only two vehicles out there. So now we have a bicycle as opposed to a (three-legged) stool.” ~Josh
“You’ve let me down a lot. Every time I think, ‘Boy, Dave’s going to have a great answer for this and I know what it’s going to be,’ I’m so wrong.” ~Josh
“I love going for the yuks, but sometimes I just don’t have it!” ~Dave
“I need to be the one that brings levity, a certain level of cavalier-ness to everything, because you guys deal with really, really, really important things for other people. You’ve got to be on your A Game all the time. And I see the stress level go way down whenever I walk in!” ~Dave
“There have been rumors of an Alf reboot … (and) who wouldn’t want a little alien life form invading our television sets?” ~Dave
- Khan Academy provides a comprehensive overview of the “New Deal” at this link.
- A look at the progression of the ratio of people contributing to versus collecting Social Security is available at this Social Security Administration website.
- Alf is real! Check out this infamous quotation!
- R=F's new private Facebook group. Come hang out!
- Don’t miss out on our staff java pick: Cometeer Coffee!
About your Co-Hosts
A certified public accountant, Josh Bretl has spent the past two decades growing FSR Wealth Strategies into a firm that specializes in tax-focused retirement planning. Because taxes have the single biggest impact on how much you can spend in retirement, Josh is dedicated to developing individualized financial plans that extend and grow his clients’ retirement savings. Based in Elmhurst, Illinois, FSR Wealth strategically preserves and maximizes resources through tax-efficient strategies designed to fulfill retirement dreams.
Apart from producing and co-hosting The Retirement = Freedom Podcast, Josh's longtime friend Dave Schmidt is a content production and marketing adviser to local businesses and nonprofits. He’s also an advocate for t-shirts, all things 90s (especially the music), short walks and long naps. A serial “wallet forgetter,” Dave nonetheless swears that he has picked up the check on at least one or two meals with Josh over the years. Evidence pending.
FSR Wealth Management is a registered investment advisor located in Elmhurst, Illinois. Information and opinions contained in this audio have been arrived at by FSR Wealth advisors. All information herein is for informational purposes and should not be construed as investment advice. It does not constitute an offer, a solicitation or recommendation to purchase any security. FSR is not providing legal, tax, accounting, or financial planning advice in this audio. These views are as of the date of this publication and are subject to change.
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