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Is Social Security really going broke?

March 18, 2018

Every week, Simply Money’s Nathan Bachrach, Ed Finke and Amy Wagner are answering your financial questions in The Cincinnati Enquirer. If you, a friend, or someone in your family has a money issue or problem, please feel free to send those questions to yourmoney@enquirer.com

 

John in Clermont County: I’m 57 and hoping to retire in about 10 years. Should I believe what I’m hearing that Social Security is going bankrupt? 

Answer: Simply Money Advisors’ research has found that 77 percent of workers in America are concerned about Social Security going bankrupt. But be careful about what you believe. 

First, it’s important to understand how the Social Security program is funded. About 165 million workers pay into the system. As a worker, you’re taxed on your first $128,400 of earned income in 2018. This amount then goes into a pool that pays for everyone who is currently receiving Social Security benefits. If there is money left over after paying out everyone’s benefits, it is put into a Trust Fund. 

The problem is, more people are retiring from the workforce than entering the workforce, and life expectancies are increasing. This creates a strain on the system, meaning the amount of money coming into Social Security won’t cover all the benefit payments. 

Plus, starting next year, it’s expected that Social Security will start pulling money from the Trust Fund. But that only has enough money in it to last until about 16 years (until 2034). So, what does this mean for retirees and future retirees? 

If Congress does nothing and the Trust Fund runs out, Social Security recipients will receive about 21 percent less than originally promised. So, for example, if you were planning on getting $1,400 a month (the average monthly benefit amount as of last year), that would be cut to about $1,100 a month. 

Just always keep in mind that Social Security can never truly “go broke” if there are current workers paying into the system. Yes, your benefit could be less than you were expecting, but you should receive something. 

But here’s The Simply Money Point: while Social Security is an important part of your personalized financial plan, it shouldn’t be your entire plan for funding your retirement. After all, the program was only designed to replace about 40 percent of your income. 

 

Susan from Florence:  My mom recently passed away and left me with some GE stock. She always told me never to sell it, and I want to honor her wishes, but I know the stock is struggling. I’m not sure what to do. Please help!  

Answer: It’s completely understandable that you want to honor your mother’s wishes. But here’s the thing: this stock is yours now. As hard as we know it can be, you need to try to emotionally detach yourself from this stock. You need to do what’s right for you and your current financial situation. We bet your mom would understand. 

And, to help with your decision, here are the three general reasons Simply Money Advisors recommends selling a stock: 

If you need the money. There may be times when you’re strapped for cash. You may have underestimated your tax bill or need extra money for some house repairs. Whatever you need the money for, make sure you talk to your tax advisor and financial planner before selling any stock. You want to understand all tax implications before you make any changes. 

There’s something fundamentally wrong with the company. Take, for example, a company like Blockbuster. Remember them? This video rental company was a staple in many strip malls. But with the creation of Netflix and other on-demand video services, it struggled to compete. Blockbuster didn’t change its business plan in enough time to turn the company around, and in 2011, Blockbuster closed its remaining 300 stores. 

If you have stock in a company that doesn’t seem to be adjusting to trends in its industry, it may be time to sell. 

If other investment options might be a better fit for you. Simply Money Advisors suggests creating a personalized financial plan that’s right for your goals and lifestyle. By developing a financial plan that’s in line with your financial goals, you may discover that your stock in a certain company doesn’t fit anymore. There may be another option that is more suitable for your goals.

The Simply Money Point is that you shouldn’t let emotions – good or bad – dictate what you do with your money and investments.

 

Responses are for informational purposes only and individuals should consider whether any general recommendation in these responses are suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing, including a tax advisor and/or attorney. Nathan Bachrach and Ed Finke and their team offer financial planning services through Simply Money Advisors, a SEC Registered Investment Advisor. Call (513) 469-7500 or email simplymoney@simplymoneyadvisors.com.

 

Social Security