Investing

Forget Taxes and Capital Gains With Social Security, the Only Thing to Pay Attention to Is Recapitalization

Austin Smith

Published: January 23, 2025 8:35 am

24/7 Wall St. Key Points:

• Unless Congress acts with significant recapitalization, the Social Security Administration estimates fund depletion by 2034.
• Early retirement moves to 64 and full benefits delayed to 73 or beyond, therefore complicating retirement planning for those in their 50s and pushing eligibility ages higher to meet the shortfall.
• Retirees have to diversify their income sources and invest in fixed income or dividend-paying assets as they get close to retirement.
• If you want to diversify your income, there may be no better option than these Dividend Legend stocks. While everyone clamors for AI stocks, steady income is on sale. Click here to learn more.

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Transcript:

[00:00:04] Douglas McIntyre: So people love to talk about social security, what tax breaks you can take passive income capital gains. But here’s here’s the primary thing people need to think about with social security, number one. Number two on social security is miles behind it the social security administration’s admits That it will be out of money in approximately 2034, could be a year earlier, could be a year later.

[00:00:33] Douglas McIntyre: So, now, that doesn’t mean out of the money the way that most people think, but benefit payouts will probably drop to something like 73%. And if you’re still alive in, 2045, which you and I don’t need to worry about, That could be down

[00:00:51] Lee Jackson: Hopefully not.

[00:00:53] Douglas McIntyre: to 65%. And one of two things has to happen. They have to pay out less or Congress has to vote to You know, basically recapitalize social security and given the number of hundreds of billions of dollars that would require It doesn’t seem like congress is rushing to do that right now

[00:01:13] Lee Jackson: Well, they better because this isn’t the 60s anymore. You know, there’s just not the growth rate for births in our country and in Europe. Has dropped dramatically and you’re not going to see for years and years and years over social security when they first started it in the 1930s, there was like 50 people for everyone paying in for everyone receiving benefits.

[00:01:38] Lee Jackson: That’s not the case. Now. It’s like 3 people paying in for everyone. And this nation is getting older and people are working longer and true. But, there’s a ton of people are going to turn 80 soon. And there’s just not the people there to, to have the inflow because I mean, social security is essentially a Ponzi scheme for a long time.

[00:02:04] Lee Jackson: It worked just great, but yeah, they’re going to have to recap it. That’s going to be interesting to see what they do,

[00:02:10] Douglas McIntyre: Well, if i’m in my 50s and i’m looking towards social security, i’m going to tell you what’s going to happen They’re going to push the age out. They’re going to move the goalposts and everybody I don’t know if they’ve ever done it or certainly for the first time in decades if you’re in your 50s Here’s your anxiety If you were going to take it at 62, which is, you know, on the early,

[00:02:33] Lee Jackson: Eliminate.

[00:02:35] Douglas McIntyre: I know they will eliminate it.

[00:02:36] Douglas McIntyre: That’ll go to 64.

[00:02:39] Lee Jackson: Yeah,

[00:02:39] Douglas McIntyre: You know, I think the high end now is 70 or 71. You want to get into that. You’re gonna be 73 or all the goalposts are gonna be moved out for two years. So if you’re planning your retirement to include social security, which will obviously whether it’s a hundred percent of your income or 5% of your income,

[00:03:01] Lee Jackson: better not be 100

[00:03:02] Douglas McIntyre: Be prepared for the fact that whenever you thought you and your financial advisor or spouse.

[00:03:08] Douglas McIntyre: Thought it was going to begin. Take that on your calendar and knock it out two years.

[00:03:14] Douglas McIntyre: Yeah. Yeah. And it’ll be interesting to see how soon they have to do it because like you pointed out, they’re essentially insolvent in 10 years in terms of having the funds to pay out. And it’s only going to keep growing. The demand is only going to keep growing and it’s Again, we told this, you know, quite a few times.

[00:03:35] Douglas McIntyre: You can’t count on it as your base of income. You have to invest. You have to invest. And, then there’s a point, like you said, when you get to your fifties and then you have to start, you’re making the risk quotient a little bit smaller and people ask us all the time. Well, you know, what should my portfolio look like and there was an old old thing They used on on wall street forever, which they kind of pooh pooh now where it said, okay Take your age and subtract it from 100.

[00:04:05] Douglas McIntyre: So if you’re 65 You’re, you’re supposed to have the smaller percentage in, in, in the stock market, 35 percent and 65 percent in fixed income or dividend paying stocks or something safe. And, you know, they, they laugh at that now because, oh, you know, that doesn’t work anymore, which it actually does work when you think about it, because when you’re 65, you don’t need more than a third of your portfolio in the stock market, because if it does crash, and it has crashed, it takes years to come back. It took years in 2000. It took years after 07 08. And you just, you know, retirees and baby boomers and senior citizens, they can’t, they can’t afford a market crash.

[00:04:49] Douglas McIntyre: Well, we’re going to come back to this later, and the topic then is going to be, will people who make a lot of money be denied social security payments or partially denied social security payments?

[00:05:03] Lee Jackson: Will they offer him a benefit to say, if you don’t take it, let’s say you’re supposed to get, say, 50, 000 a year, you know, four, four grand a month. If they don’t take it, you can deduct that from your income taxes. And that may be something that could work