Money Rehab with Nicole Lapin - Will Social Security Go Bankrupt By the Time You Retire? Here's the Truth

Episode Date: March 14, 2024

If you've been banking on Social Security being your slush fund in retirement... don't. Nicole explains how Social Security benefits work, why they're in trouble, how this issue has become a part of the 2024 Presidential campaigns, and what you need to do in order to prepare. Here is the Social Security Benefits calculator Nicole mentions: https://www.ssa.gov/OACT/quickcalc/ Here is where to set up the "my Social Security" account: https://www.ssa.gov/myaccount/ $ If you're ready to find your dream team, use LinkedIn Jobs. Post a job for free at: linkedin.com/mnn $ Want to level up your money moves? Check out Facet. Facet is the next generation of personalized financial planning that is making professional financial advice accessible to the masses, not just the rich. Facet will help you understand and expand your financial opportunities by providing you with a team of financial planners (with the CFP® certification you want) and a team of professionals across all the major food groups of your financial wellness: retirement planning, tax strategy, estate planning and more. To claim Facet’s offer for Money Rehabbers, go to: https://facet.com/moneyrehab 

I love hosting on Airbnb. It's a great way to bring in some extra cash. But I totally get it that it might sound overwhelming to start, or even too complicated, if, say, you want to put your summer home in Maine on Airbnb, but you live full-time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you.

I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at airbnb.com slash host. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no

maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand.

It's time for some money rehab. If you're American or if you work in America, you have a social security number and you probably have it memorized. You probably know that it has something to do with social security checks that you get in retirement. But do you know how you'll get those checks or how much money those checks will be worth? This is actually a topic that got Trump in hot water earlier this week. But before we get there, here's all the background you need to know on Social Security. You've probably noticed on your paycheck that some of your income goes to OASDI. We should all get in the habit of looking up anything we don't understand, especially on our paycheck. But if you've never looked it up, it basically is the line item for Social Security contributions.

It stands for Social Security Administration's Old Age, Survivors and Disability Insurance Program. You might think that your Social Security works like a 401k and that the money taken out of your paycheck goes into this OASDI account with your name on it and just sits there beautifully and waits until you retire. Unfortunately, it does not. Your Social Security contributions go to the people who are claiming Social Security benefits right now. In 2024, almost 68 million people will receive a Social Security benefit, which will provide an estimated $1.5 trillion

in benefits. And how much of that $1.5 trillion is from you, you might ask? Well, in 2024, the amount each American contributes to Social Security is 12.4% of their paycheck, up to a certain limit. However, if you're employed by a company, you only get 6.2% taken out of your paycheck, and your employer pays the other 6.2%. If you're self-employed, you pay, yep, the whole 12.4%. This year, if you're not self-employed, the maximum that you'll contribute to Social Security is about $10,500. Social Security has become a bit of a political issue. Some people think, I have worked so hard for this money, no one else should get this money but me. And listen, I get it.

But at the same time, it's easy to say that federal aid is overrated if you're not depending on it. I know it stings to have money taken out of your paycheck under any circumstances, but Social Security does good work. The misconceptions are pretty harsh, but I'm gonna put them out there because you probably have heard them before. A common assumption is that Social Security goes to lazy Americans who fake disabilities because they don't wanna work. What a lot of people don't know, though, about Social Security is that it pays more benefits to children than any other government program. In 2023, of every Social Security tax dollar you paid, 89 cents went to current retirees and survivors, like children of workers who have died. Only 11 cents went to folks on disability.

Plus, your Social Security good karma does come back to you when you retire. When you'll be able to opt into Social Security retirement benefits, how much you'll receive will differ depending on how long you've been working and how much you've earned in the workforce. The thinking there is that if you've worked for a long time, you've made a lot of money, you've also contributed a lot of money, and you should be rewarded for your contributions. Even though there's a very political voice that's critical of Social Security for the most part, Americans support Social Security benefits on both sides of the aisle. This became crystal clear when former President Trump suggested on CNBC on Monday

that if he were elected president in 2024, he would make cuts to Medicare and Social Security. It seems like this was just a miscommunication because his campaign quickly sent out a press release saying that Trump is actually focused on protecting those programs. Biden's team was quick to put out a statement saying that President Biden would never cut Medicare and Social Security. So both Trump and Biden's commitment to protecting Social Security this week is definitely a reflection of how important these programs are to voters. Because don't forget, the whole point of this program is to benefit you too. Sure, your exact contribution from your individual paychecks don't come back to you. But when you are in retirement, you'll be collecting Social Security payments that are funded by contributions by someone else. It is the financial circle of life.

And when will you be able to get those Social Security checks? If you were born after 1960, you'll want to start claiming your benefits at 67. You can claim those benefits earlier or later, but whatever age you choose comes with consequences for your payout. Unless you're a beneficiary or if you qualify to collect Social Security benefits because of a disability the earliest you can collect Social Security benefits is 62 but you'll receive less benefits if you choose to do so on the flip side you get some extra perks if you claim your benefits between the ages of 67 and 70. when it comes

to predicting how much you'll earn from Social Security, I have some good news and some news you're probably not going to want to hear. The good news is that the Social Security Administration has an online calculator that you can use to project how much money you'll likely receive from Social Security in retirement. I have linked that beautiful calculator in the show notes. It is a very helpful resource, but don't take this calculation as gospel. I take my number with a grain of salt and expect the amount I can actually collect in retirement to be lower. Regardless, I recommend that you check this out because it will probably help you confront an important reality. Enter the news you're not going to love. Social security will not replace your income when you retire. You might be thinking, I thought that's what it was for. And a lot of people do. But no, Social Security was not designed to replace your income when you retire.

According to the Social Security Administration, on average, retirement beneficiaries receive 40% of their pre-retirement income from Social Security. In other words, you can only expect your Social Security checks to cover about 40% of what you're now making. Would you be able to cut your spending plan in half right now in an easy breezy transition? I know I wouldn't. We can also look at the average amount social security beneficiaries receive, which is around $1,800 a month in 2023 or about $22,000 a year. If you're looking to ball out in retirement, you are going to need more than that.

Plus, you're going to have to pay taxes on 85% of your Social Security benefits if your income is greater than $34,000. And this income includes taxable income from investments. And here's another wrinkle. Social Security isn't what it used to be by 2034, which is less than a decade away. Crazy retirees will only receive 77% of the benefits that they'd expect, which will mean smaller checks and fewer checks. This is because the Social Security Administration is running out of money.

There's a myth that this is because we are living longer, which actually is not true. The real reason Social Security is in trouble is actually because Americans are having fewer babies than they did in the World War II era. So now we're in a position where we have a large aging population and relatively fewer Americans of working age to pay into Social Security. The Social Security administration is appealing to Congress for more funding, but as of right now, the future is in limbo. The broken record that you will hear again and again throughout money rehab is that most of the retirement options that people think will replace their income when they retire won't. It's not just Social Security. It's 401ks too. The way 401ks

have been marketed to us over the years have made most people believe that they're going to have enough for retirement with just a 401k. Financial newsflash. A 401k is not going to replace your income in retirement. The truth is you're going to need to mix and match different retirement options to live your best life in retirement. Even though that might not be the news you want to hear, it's not bad news. Because in the financial world, the worst kind of bad news is the news you never find out about. The worst case scenario is that you spend your

career thinking your social security account is going to leave you in good shape in retirement, and you only realize the reality once you've entered retirement land and it is too late. But by being here, you have already saved yourself from that worst case scenario. Now that you know how to best strategize for retirement, you can take action. And that's good news. For today's tip, you can take action. And that's good news. For today's tip, you can take straight to the bank. If you have a social security number, a U.S. mailing address over the age of 18, you can create an online account with the Social Security Administration called, appropriately enough, My Social Security Account.

This account will be your best friend as you edge closer to retirement because you'll also be able to use this account to set up direct deposit and everything you need to collect that social security. I love hosting on Airbnb. It's a great way to bring in some extra cash, but I totally get it that it might sound overwhelming to start or even too complicated

if say you wanna put your summer home in Maine on Airbnb, but you live full-time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work,

but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can

overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and

conditions apply. Go to Chime.com slash disclosures for details. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content.

And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.