Ken Moraif
Ken, hello everyone, and welcome to the Retirement Planners of America podcast. I hope this finds you healthy, wealthy and wise. I am Ken Moraif, the founder and CEO of Retirement Planners of America. And in these podcasts, we try to have more fun than a human being should be allowed to have when talking about all this boring financial stuff, and in this case, the bad news regarding Social Security. So we’re going to go through with you what the bad news is, because there’s a little bit of it, but then most importantly, as we always do, we’re going to talk about what should you do strategically, given the bad news? Okay, so we are planners, not, I guess, panic inducers. RPOA.com

So I’m gonna bring my co-host here, Jeremy. Jeremy, good to see you. You’re looking very dapper. Look—

Jeremy Thornton
Look at you. I appreciate that. It’s good to be here. I love your tie.

Ken Moraif
You do? Yes, thank you. I don’t have a comment about that. I’ll just say thank you.

Jeremy Thornton
Thank you indeed. Okay, Social Security. Bad news. What happened?

Ken Moraif
Well, the Social Security trustees came out, and they’re looking at when will Social Security be unable to pay the benefits as promised? And they revised it, okay, because they said that it was going to go for a longer period than it actually will. But they just came out and said that Social Security is going to experience financial difficulties in 2035.

Jeremy Thornton
Oh wow. So that’s a hop, skip and a jump from here. Yeah, that’s very concerning.

And this isn’t the first time that Social Security has kind of run into an issue where their math isn’t working out as they wish. I’ll say so. In April 1982, the Social Security Administration came out and they did a report and said they would be unable to make benefit payments no later than July 1983, which is an even shorter time period for their prediction. And they made some changes, and they said okay, we’re solvent again. We’re good to go. The math works out. What changes are they planning to make this time?

Ken Moraif
Well, yeah, so the takeaway from what you just said is that their projections have been really bad. Okay, so they’re constantly changing these projections, and it seems like they don’t change them for the better. They always seem to change them for the worse, which implies that they tend to be overly optimistic when they’re talking about how long Social Security is going to last, and all that good stuff.

So the problem we’re having today is that Social Security has been taking in less money than it’s been paying out since 2021. Wow. Okay, so it’s been here for a while. And so what they’re actually doing to make up the difference is they’re tapping into the Social Security Trust Fund. Okay? And so they’re draining the tub on the trust fund to keep the benefits where they’re supposed to be.

But the challenge that they’re facing is that we have 10,000 people turning 65 every single day in this country, and that’s going to go on for potentially another 10 years. Yeah, so you think about how many people that is that are now going on Social Security, and so therefore, by 2035 the trust fund is going to be depleted, and we’re going to be in—

Jeremy Thornton
Trouble. Okay, so if I were a homeowner, and I tell the bank, “Listen, I don’t have any money right now, but my uncle, he’s going to spot me for a couple of months.” Well, my uncle is not a wealthy guy either, and he has his own bills to pay. So I feel like Social Security is in that same kind of deal.

And you know, in 1982 they made a bunch of changes, and they were able to kind of correct course to get those payments out. Are they going to be able to still pay out the same amount as they have been? Are we going to see a loss of benefits?

Ken Moraif
Yeah, so this isn’t the end of Social Security. Okay? This 2035 date is not saying that Social Security will go away. Okay, that’s good.

Basically, what they’re saying is that they’ll only be able to pay out 81% of the benefits that are currently being promised. Okay? And the reason why is because Social Security is a pay-as-you-go system. It’s not like we’re putting money away for the future. Current workers—the money that’s being taken out of our wages, right, to put into Social Security—are the ones that are being used to then transfer and pay to Social Security recipients.

And the problem is that as America gets older, there are more people in the retirement age and fewer people in the working age. I’m envisioning a day when what will happen is that it’ll be one-for-one. In other words, there will be one worker for one Social Security person. And basically, they’ll work all day, every day, and just drive over and hand the money. So yeah, I mean, that’s the trend we’re on. You know, I mean, it’s an exaggeration, but if that’s the case, you know, we should start thinking about how well we’re going to treat that worker. Get me my Social Security! So that’s the problem. We have a shrinking supply of workers that are paying into the system, because we’re not putting it in for the future—we’re putting it in to cover today.

Jeremy Thornton
Yeah, and dropping to 81%—that’s, I mean, almost 20%. That is a sizable impact on anyone on Social Security currently, not even to mention people that aren’t on it. So what do you do if you’re looking at this and let’s say you’re approaching that retirement age? You’re approaching it. What do you do?

Ken Moraif
Well, we have to kind of think of it in the context of how do we respond to what the Social Security Administration is going to do to address these issues, right? So there are several things that they could do to fix this problem.

Okay, so the first one is that they could increase the income amount that is subject to Social Security tax.

Jeremy Thornton
Love that.

Ken Moraif
Depending on who you are, you’ll like that or not, but yeah. So I mean, right now it caps out in the mid $170,000s. So anything above that is not subject to Social Security taxes. They could increase that limit, and potentially, I can envision a time when they’ll say that Social Security tax will be subject to an unlimited amount of income. So no matter how much income you make, you’re going to pay the Social Security tax. But right now, it’s capped out. So that’s kind of an easy, politically easy way to address it, because you’re addressing the higher-income people, and so that’s usually politically more palatable.

The other thing they could do is raise the retirement age. So, you know, it used to be 65 and it’s really been going—so right now, in 2026 they’re going to raise it already to 67. Okay? And so that trend has already begun. People are familiar with the fact that they’ve been increasing the full retirement age. So they could increase that potentially to 70 or something, and then that would delay the payments being made out, and therefore extend how long the benefits could be paid.

And then another thing they could do, which would be—I don’t know how politically acceptable that would be, and it would be pretty draconian—but if we want to save the system, we have to look at everything. And that would be—they could say, “Anybody making over a certain income level when they retire, you don’t get any Social Security.” You know, “Thank you for having contributed to the whole thing. We really appreciate your efforts and what you did, but you get nothing.” And they could make that subject to a means test. In other words, you’re getting income from other sources, and if your income is high enough, you get no Social Security.

So those are all kinds of things that they could do to fix the system. So is it going to die in 2035? No. Right? But it’s a short fuse to fix it, because politically, if people start seeing 20% of the Social Security benefits go away, there are going to be a lot of people voted out of office for that.

Jeremy Thornton
Absolutely, yeah. That’s a large—I mean, 10,000 people every day—that’s a large voting block of people.

Ken Moraif
Yeah. And for our clients, you know, the demographic that we work with, Social Security is a significant portion of their retirement income. And so seeing a 20% reduction in that, you know, it’s impactful.

Jeremy Thornton
And that would all affect people currently on and getting Social Security payments. It’ll just be like, “Hey, this is what we promised. We can’t give it to you. Here’s the drop,” right?

Ken Moraif
Yeah, this would affect both people—people who are going to get these benefits and people who are on Social Security currently. They’re going to say, “Well, guess what? I know you were supposed to get $1,700—well, no, you’re not. You’re going to get $1,400,” or something like that. So those kinds of things are potentially what could happen.

Our view is, though, that some combination of all of the above is likely how it all plays out. The politics of the day will dictate whatever Frankenstein monster they create to get it across the finish line, at least in 2035 anyway.

Jeremy Thornton
Okay, so we know what the government may or may not do, kind of the different plans that they’re likely looking at, things like that. Is there anything that we can do as financial advisors and retirement planners to say, “Hey, this is what you need to do if you’re on it?”

Ken Moraif
Okay, yeah. So depending on who you are, there are different ways to look at this. Our view is that if you are in a higher income bracket, the likelihood is that you’re going to be the target of any reductions in benefits—or hopefully not, but maybe you’re disqualified from getting any benefits at all. Whatever it may be, the likelihood is that, again, because it’s politically expedient, the higher net worth or higher income you have, the more likely that you’re going to be the target.

So that being the case, there’s lots of discussion about when is the best time to take Social Security. And the dates that people gravitate around are when you’re 62 (when you’re first eligible), 67 (full retirement age starting next year), and then 70. Those are the three dates that people focus on. And there’s a lot of mathematical justification for waiting until 70.

The problem with that, though, is that you’re basing those calculations on the promised benefits that you’re going to get if you wait until you’re 70. And if those don’t materialize, then the break-even point between starting at 66 versus 70 may never be reached, because you’re assuming that when you turn 70, you’re going to get that benefit. But what if you only get 50% of the benefit you thought you were going to get? Now, all of a sudden, you’ll never catch up.

So when we’re talking with clients, we’re always talking about: What are the probabilities in your mind that the benefits will not be there for you in the future? And therefore, would it make sense to take it while the getting is good?

And the thing about it that you also have to think about is that Social Security—yes, you get paid more if you wait until you’re 70 than if you start when you’re 66 or 67—because of the cost-of-living increases and adjustments until you’re 70. But what you also have to keep in mind is that Social Security will pay you the same dollar amount over your life expectancy.

Okay, so the reason why they’re going to pay you more when you’re 70 than when you were 62 or 66 is because your life expectancy is shorter. But the total dollars they calculate they’re going to pay you are the same.

So if you start at 62, you’ll get a smaller amount for a longer period of time. If you start at 70, you’ll get a larger amount for a shorter period of time. But the net is—they’re calculating the same total amount. So there’s not necessarily a huge penalty if you take it early versus later.

So for clients who are in a higher net worth, higher income bracket, it’s not unusual for us to decide: Let’s take it now—even though the math says maybe waiting until 70 might be better—because right now that may not materialize.

Now, the opposite is also true: If you’re more dependent on your Social Security, then it may make sense for you to start taking it now as well. But it depends on your income, it depends on your expenses, and those kinds of things.

So what we want to do is look at: What is the probability that Social Security will be there for you? If you’re more dependent on it, chances are you will be the beneficiary of whatever changes they make. If you’re in a higher income or higher net worth category, you probably will not be the beneficiary. You might be the benefactor.

Jeremy Thornton
You’re the one that’s going to be donating to the cause—forcefully.

Ken Moraif
Yes.

Jeremy Thornton
Okay, all right. So that’s kind of a bad sandwich to have to eat.

Ken Moraif
Yeah. And, you know, the other thing that we do is what’s called a Retirement Cash Flow Plan. And so what we want to do when we’re doing that is we want to look at all the sources of income you’re going to have during your retirement. Social Security is an important component of that.

And so what we can do—and what we do do (did I say “do do”?)

Jeremy Thornton
You did say “do do.” Okay, what we—

Ken Moraif
What we do is say, “Okay, what happens if Social Security is reduced later?” We can build that into our model. In 2035, let’s say, for example, you do get 80% of your benefits at that time. Now, how long will your money last? What does that do to your cost of living? Can we compensate for that?

So the planning aspects of it are eminently surmountable. It’s not a situation where you need to panic. But again, if you plan ahead, you can be ready for that. And if you plan far enough ahead, then the compounding of money—which is, according to Einstein, the 8th wonder of the world (or some version of that)—can work in your favor. And you can start planning ahead.

So there are lots of ways to plan for this. And our philosophy always is: You plan for the worst and hope for the best. You don’t plan for the best and hope the worst doesn’t happen.

Jeremy Thornton
Yeah. And you know, planning for something like this—this news just came down very recently. How soon should someone bake this into their plans? Talk to somebody, make adjustments, things like that? Because we don’t know for sure what’s going to happen yet—but I think it’s a good idea to start talking about it.

Ken Moraif
You know, the moment you know that there is a change is the time when you should start talking about how to address that change. So right now they’ve announced it. 2035. They’ve given us a date. That’s not that far away.

And, you know, as you get older you realize time flies. You blink, and just like that—the year’s over already. Five years are gone. A decade’s gone. So 2035 is a hop, skip, and a jump from here.

Starting to plan ahead for that is important. Now what could happen is—we’ve planned for that, and one of the things we believe in is that if you do planning and you have a plan, it gives you peace of mind.

People ask, “What do you do?” I say, “I sell peace of mind.” That’s my product. If my clients can have peace of mind about their finances, then I’ve delivered my product.

The way we do that is we plan. We say, “Okay, if this happens, this is how we’re going to adjust to it.” Now they feel that sense of peace of mind.

They could come out in a year or something and say, “Okay, here are all the fixes that we’re going to make.” Then it’s time to go back to the plan and ask, “Does our plan adapt for that? If not, we need to adjust accordingly.”

Do you plan for something that you don’t know is going to happen? No. You plan for something that you know is on the table. And you don’t assume they’re going to fix it—you assume they’re not. Assume the worst, plan for the worst.

So right now, the plan would need to address: What if benefits are cut?

But if they come out six months from now or a year from now and say they’re going to do something about it, then you adjust your plan accordingly.

I’ve used this example before because I like it: the difference between a bow and arrow and a heat-seeking missile.

A bow and arrow: When you pull the arrow back and let go, all the intelligence that arrow will ever have is baked in when you release it. So if a gust of wind comes along, or someone moves the target two feet to the right, the arrow doesn’t know—it just misses.

A heat-seeking missile, on the other hand, follows the heat. It adjusts and finds the target as it moves.

That’s what planning is. It’s a heat-seeking missile. We want your money to last as long as you do. We want you to have peace of mind about that. So the plan needs to constantly adjust to all the things that are going to happen.

And by the way—Social Security is not the only thing that’s going to change between now and the rest of your life.

Jeremy Thornton
Wait—you’re telling me I can’t just plan out the rest of my life now?

Ken Moraif
No, you can’t. I’m sorry to break it to you. You’re going to have grandchildren (God willing), you’re going to change jobs, retire, your health may change. There’s a million things that could happen.

Jeremy Thornton
Absolutely.

Ken Moraif
And that’s where planning comes in. And that’s why you need to keep your plan up to date.

Jeremy Thornton
Absolutely. Awesome. Well, do you have anything else you want to add?

Ken Moraif
No, I think that’s basically the thing. And certainly, seeking out somebody that understands Social Security, that is trained in that area—I think—is extremely important.

And of course, that’s what we do. So that was a little plug.

So, ladies and gentlemen, thank you for watching our podcast. As I mentioned at the top, I hope it found you healthy, wealthy, and wise. And also, please like and subscribe. It helps us out a lot, but it also helps you—because that way, you’ll never miss one of our episodes. You don’t want to do that.

Thank you for watching, and we’ll talk soon.