Issue #86: I’m never getting Social Security, right?

March 24, 2021 // ISSUE #86

Hi y’all —

I will always remember the first time I read the ending of The Outsiders. I was in seventh grade, sitting on the living room couch with my legs tucked under me. The tears started when Johnny died and didn’t stop. By the time Dally was shot, I was full-on sobbing, hiccupping as I tried to catch my breath.

As devastating as it was for 13-year-old Julia, I now view finishing the The Outsiders as a rite of passage. “Nothing gold can stay” — the Robert Frost line Ponyboy recites to Johnny — is a revelation, especially when you’re young.

The adage has only become more applicable with time. For example, it perfectly describes what I know about the Social Security program. It seems like a sweet deal for current beneficiaries, but does it have an expiration date? As a millennial, I’ve only ever heard people talk about how Social Security is vanishing. I’ve come to believe it’s out of reach for me.

Though nothing gold can stay, I want to make sure. I’m never going to get Social Security, right?

First, a history lesson. Social Security is shorthand for the Old-Age, Survivors and Disability Insurance program, which dates back to the 1930s. The law that created it was part of Franklin Roosevelt’s New Deal; it was intended “to provide for the general welfare by establishing a system of federal old-age benefits,” according to its text.

The math was — and still is — too complicated to get into here. But the idea was that people would contribute via payroll taxes and then, later in life, be able to receive monthly benefits.

“We can never insure 100% of the population against 100% of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age,” Roosevelt said at the time.

Over the years, the guidelines for the program have changed several times. The broad strokes these days are that I help finance it; I pay 6.2% tax and my company pays 6.2% tax on my earnings up to $142,800. The average monthly Social Security check is $1,543.

Everyone talks about the program going away because, as the Social Security Administration’s own website admits, it “is not sustainable over the long term at current benefit and tax rates.” It started paying out more than it was collecting in 2010. On top of that, the reserves are set to run out by 2035, at which point the money collected via payroll tax will “be sufficient to pay only about 79% of program costs.” Yikes.

Me: What would you like us to assume for Social Security?

This has led to anxiety for people like me, said Amy Shepard, a certified financial planner with Sensible Money in Scottsdale, Arizona.

“A lot of younger people and people closer to retirement have this fear that it's just going to evaporate,” she adds.

Shepard said that the general consensus in the financial planning industry is that Social Security won’t suddenly evaporate… but it probably will change. To predict those changes, she likes to look back at the past.

Take the age requirement, for instance. Initially, the full retirement age — the age at which you can get all your benefits — was 65. But in the 1980s, the government moved to gradually raise it to 67. “That extra two years for millions of people to have to wait to collect full benefits bought the system some time,” says Shepard, also a retirement management advisor.

In her opinion, that’s likely to happen again. The full retirement age may increase to 68, 69 or 70. This will be inconvenient, but I’ll get advance notice of it.

“We don’t anticipate that they'd make drastic changes for anybody's who really close to or already collecting benefits because of the social ripple effect,” she adds. “There would be uproar. It wouldn't happen because of how much stress that would put on retirees and, in turn, how it would affect the economy.”

Another possible adjustment could have to do with the Social Security wage base. Currently, the taxes max out once I earn over $142,800. President Joe Biden has proposed expanding the wage base so that wages above $400,000 are also subject to Social Security taxes. Shepard says the theory is that, by making higher-income earners contribute more, the program could be solvent for longer.

Nobody knows what aspects of Social Security will actually end up changing. But Sean Wilson, head of investment products for TIAA, said there is a silver lining: I have a lot of time to figure out my retirement strategy.

“From a planning standpoint, it's prudent to prepare as much as you can and prepare for Social Security not looking like what it looks like right now,” he says. “Ideally, you don't have to rely on Social Security.”

To start, I should make sure I’m maximizing my employer 401(k) match. I can diversify my income stream (by, say, taking on a rental property or something) and create my own pension by buying an annuity. I can invest in the stock market and put compound interest to work in my savings accounts.

THE BOTTOM LINE

(but please don't tell me you scrolled past all of my hard work)

Though it probably won’t vanish completely, Social Security will look a lot different by the time I’m near retirement age.

As such, I should plan around it — prepare and save as if I won’t get any benefits. That way I’m not screwed if it is somehow gone by the time I’m in my 60s. And if some version of Social Security is still kicking, it’s icing on the cake.

“Plan for the worst, hope for the best,” Wilson adds.

via GIPHY

RECEIPT OF THE WEEK

via Instagram

Because she came to fame at such a young age, musician Billie Eilish doesn’t know how much regular items cost. She confessed as much in a recent interview with Vanity Fair. “I tried to order one box of Froot Loops, and I was like, oh yeah, sure. It’s $35. I didn’t know that that’s expensive,” she said. “I ordered 70 boxes.” At least she got everything she wanted.

INTERNET GOLD

five things I'm loving online right now

1	I love these photos in The Guardian of old-school New Yorkers in their elaborately decorated apartments. Tag yourself, I’m Steven Hammel.
2	Have you ever wondered why hummingbirds hum? New research has confirmed not only that the sound comes from their wings but also that those wings operate like BUGS’ wings. “This is the reason why birds and insects make different sounds,” Stanford University’s David Lentink said in a news release. “Mosquitoes whine, bees buzz, hummingbirds hum, and larger birds 'woosh'.” Do you guys think woosh is the technical term, or…?
3	Look at this frog getting abducted by aliens.
4	Me? Reminiscing about the time Tom Holland was on Lip Sync Battle, a full four years after his episode aired? No comment.
5	This TikTok of late Jeopardy! host Alex Trebek made me teary in a good way. What a dude.

401(K)9 CONTRIBUTION

send me cute pictures of your pets, please

via Sharon Melendez

Meet Señor Tux Cappuccino, a 7-year-old who is stockpiling treats in case of changes to Social Sefurity.

See you next week.

Julia

P.S. Last issue about negotiating bank rates got y'all talking. Scholar Joe pointed out that rate bumps are typically reserved for loyal customers. Scholar Patrick said if I get tired of low bank rates, I can always look into money market funds and other investment vehicles.

P.P.S. What do you think will happen to the Social Security program? How long would it take you to eat 70 boxes of cereal? What song would you lip sync to on TV? LMK at julia.glum@money.com or @SuperJulia on Twitter.

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Issue #86: I’m never getting Social Security, right?

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