Will your benefits be there when you need them the most? If so, should you collect your benefits as soon as possible? This is something I'm frequently asked, so much so that I decided it was time to address it. So in this episode of Retire with Ryan, I'll cover how Social Security works, how long Social Security will remain solvent, and whether or not you should collect early.

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You will want to hear this episode if you are interested in...

• [1:52] How does social security work?
• [4:23] Social Security solvency report
• [6:10] What are the options?
• [10:24] Are there enough people paying in?
• [11:25] Should you wait to collect Social Security?

How does social security work?

Every dollar you earn—up to an annual maximum amount—is taxed for Social Security and Medicare. This is known as the FICA tax. You pay 6.2% of your income up to $168,600. The company you work for also pays 6.2%.

If you're self-employed, you pay both portions. The amount you earn over $168,000 isn't subject to the FICA tax (but is subject to the Medicare tax). The limit is adjusted upward annually.

The money is used to pay current Social Security beneficiaries their monthly check. When social security first started, 40 people were paying into the fund to every one person collecting. That ratio is now closer to 2-to-1.

The initial surplus was put into the Social Security Trust Fund to pay for future benefits. Now, more funds are being paid out than taxes being collected. The government is covering the deficit from the trust fund. This is why people are worried that Social Security will go broke.

Social Security solvency report

Each year, a report is issued on the solvency of Medicare, Social Security, and other social systems. It states that, unfortunately, Social Security and Medicare programs both continue to face significant financing issues.

What else does it say? The Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay 100 percent of the total scheduled benefits until 2033. After this, 79% of scheduled benefits will be paid annually.

If nothing is done in the next nine years, starting in 2033, recipients will see a 21% reduction in their benefits. This would be catastrophic for most people.

How can we solve the solvency problem?

Most retirees get 40% of their income from Social Security. Congress must do something to make sure people receive the same benefits. What can they do?

• Raise the Social Security earnings limit: They could raise or do away with the annual cap and tax everyone on their entire annual income.

• Increase in the percentage that's paid in: Instead of 6.2%, they may raise the FICA tax to 7.2% or 8%.
• Increase in the age of retirement: Full retirement age for someone born after 1960 is 67. They may raise the age to 68, 69, or 70.
• Increase the taxation of benefits: Social Security benefits are taxed based on your earned income in the tax year you're receiving your benefits. Benefits weren't taxed in the past. But in 1983, Social Security was made taxable.
• Changing the cost-of-living adjustment calculation: In 2024, the COLA was 3.2%. With the high inflation we're experiencing, this adjustment gives people a chance to have their income keep pace with inflation.
• Part of Social Security money could be set aside and invested in stocks/bonds: This is a quite unpopular proposition that some people believe is too risky.

Congress needs to decide what they're going to do and pass a bill into law. However, Congress tends to wait until the last minute to get things done. The last big change was in 1983. Hopefully, the next change will make the system solvent for longer.

Resources Mentioned

• Retirement Readiness Review
• Subscribe to the Retire with Ryan YouTube Channel
• Fiduciary: How to Find, Hire, and Establish an Aligned and Trusted Partnership with a Fee-Only Financial Advisor
• Status of the Social Security and Medicare Programs (2024)
• Cost-of-Living Adjustment (COLA) Information for 2024
• How Medicare Enrollment Impacts HSA Contributions
• Changes to the Social Security Cost of Living Adjustment in 2023

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