Social Security Won't Give You Security

2,128,847 Views
Dec 11, 2017

If you're counting on Social Security to finance your retirement, you're in for a big surprise. Money expert Chris Hogan explains why.

You can’t rely on a system that’s going broke. Social Security has been broken from the beginning. 

  • When Social Security was set up in 1935, the average life expectancy was 60 for men, and 64 for women.View Source
  • But you couldn’t collect your first check until you reached 65. In other words, most people didn't live long enough to receive Social Security. And most of those who did didn't collect it for very long.View Source
  • According to data from the World Bank, in 2015 the average lifespan was 79. Now, most people do live long enough to receive Social Security – for 10 or 20 or even 30 years.View Source
  • Related reading: “The Future State of Social Security (and What You Can Do About It)” – Chris HoganView Source
  • WATCH: Author Dave Ramsey on Social SecurityView Source

Under the current Social Security system, by 2040 the amount of benefits paid out will be about 40% more than the money coming in. 

  • Under the current system, the gap between incoming taxes and benefits paid will be about 40% by 2040.View Source
  • Social Security’s own Board of Trustees has said that it will deplete its trust fund within twenty years.View Source
  • Related reading: “The Truth About Social Security” – Chris HoganView Source
  • WATCH: Chris Hogan on how debt threatens retirement dreams.View Source

Don’t trust your future to Social Security. Its own Board of Trustees warns that the program will deplete its trust fund within 20 years.

  • Social Security’s own Board of Trustees has said that it will deplete its trust fund within twenty years.View Source
  • Under the current system, the gap between incoming taxes and benefits paid will be about 40% by 2040.View Source
  • Related reading: “The Truth About Social Security” – Chris HoganView Source
  • WATCH: “Focusing on the Dream and not Social Security for Retirement with Chris Hogan”View Source

When Social Security was set up in 1935, the average life expectancy was around 62; now it’s 79—that’s why it’s rapidly running out of cash.

  • When Social Security was set up in 1935, the average life expectancy was 60 for men, and 64 for women.View Source
  • But you couldn’t collect your first check until you reached 65. In other words, most people didn't live long enough to receive Social Security. And most of those who did didn't collect it for very long.View Source
  • According to data from the World Bank, in 2015 the average lifespan was 79. Now, most people do live long enough to receive Social Security – for 10 or 20 or even 30 years.View Source
  • Related reading: “The Future State of Social Security (and What You Can Do About It)” – Chris HoganView Source

There are now simply too many retirees compared to the number of workers for Social Security to be sustainable. 

  • When the program began, the ratio between workers and retirees was 159 to 1.View Source
  • In 2013, the most recent year available, the ratio was 2.8 to 1. We’ve gone from 159 workers supporting every retired person to fewer than three workers supporting every retiree.View Source
  • Politicians have an incentive to keep taxes low when a program is first introduced and force the bill on future generations. This is what has happened with Social Security.View Source
  • Social Security now relies on a trust fund to keep it running, and this fund will be depleted within twenty years, leaving payroll taxes as the only source of benefits.View Source
  • WATCH: Author Dave Ramsey on Social SecurityView Source

Even if it weren’t going broke, Social Security couldn’t possibly be relied upon to cover the cost of a decent retirement. 

  • In 2017, the average monthly Social Security check calculated for all workers was a little over $1,300.View Source
  • A retiree in 2050 should get around $1,950 a month in benefits, but if Social Security’s problems aren’t fixed, that number could drop to $1,500.View Source
  • That’s under $17,000 a year – barely above the poverty line for a two-person household.View Source
  • According to a 2015 study by the Government Accountability Office, approximately 52 percent of unretired baby boomers have no retirement savings.View Source
  • It’s unlikely that Social Security benefits will ever go to zero, but if the government is unable to close the gap between benefits and tax revenue, benefits will be reduced.View Source

Avoid relying on a broken Social Security system. Get a budget, avoid debt, and invest your savings—around 15% is a good start.

  • You cannot rely on a broken Social Security system for your retirement. First, get on a budget.View Source
  • Second, attack and avoid debt.View Source
  • Third, invest your savings – as little as 15% of your income can allow you to retire comfortably.View Source
  • WATCH: Chris Hogan on the Basics of Budgeting.View Source
  • WATCH: Chris Hogan on how debt threatens retirement dreams.View Source
  • WATCH: Chris Hogan on the value of saving $10 per day.View Source

Want to retire comfortably? First, get rid of and avoid debt. 45% of Americans spend half their income on debt repayment.

  • One of the keys to retiring comfortably is attacking and avoiding debt.View Source
  • 45% of Americans spend up to half of their income on debt repayment.View Source
  • WATCH: Chris Hogan on how debt threatens retirement dreams.View Source

Because Social Security is insufficient and unreliable, anything you get from it should be considered a fringe benefit.

  • You can’t rely on Social Security as a primary source of income when you retire because it is a fundamentally flawed system that is rapidly running out of money.View Source
  • Related reading: “The Future State of Social Security (and What You Can Do About It)” – Chris HoganView Source
  • Related reading: “Retire Inspired: It’s Not an Age; It’s a Financial Number” – Chris HoganView Source
  • WATCH: “Focusing on the Dream and not Social Security for Retirement with Chris Hogan”View Source

If you’re counting on Social Security to finance your retirement, you’re in for a big surprise—and not the good kind.

Let me give you two reasons why.

One: Social Security is going broke.

And, two: Even if it weren’t going broke, it couldn’t possibly cover the cost of a decent retirement.

Let’s look at these two reasons in a little more detail, and then I’ll propose a solution.

Social Security is going broke.

When this government program was set up in 1935, the average life expectancy was 60. But you couldn’t collect your first check until you reached 65. In other words, most people didn’t live long enough to receive Social Security. And most of those who did, didn’t collect it for very long. Today, the average lifespan is 79. So now, most people do live long enough to receive Social Security—for 10, or 20, or even 30 years.

Here’s another important piece of information: When the program started, the ratio between worker and retiree was 159 to 1. That means for every one person drawing benefits, 159 were paying in. Today the ratio is 2.8 to 1. Get that? We’ve gone from 159 workers supporting every retired person to fewer than three workers supporting every retiree. And it’s going down.

You don’t need an advanced math degree to figure this one out: Social Security is spending more than it’s bringing in. Far more. Its own Board of Trustees has said that it will be bankrupt within twenty years.

That doesn’t mean it won’t exist. It means that either the government will pay you less than it promised, or it will have to raise taxes to make up the shortfall. Most likely, both.

Sounds about right for an entitlement program, doesn’t it? Starts out small, but just keeps growing and growing until it collapses under its own weight.

But let’s indulge in a fantasy and say that Social Security is perfectly designed, perfectly balanced, and efficiently run. And that you would get every dollar you were promised.

You’d still have a major problem if that’s all that you’re relying on.

To illustrate, in 2017 the average monthly Social Security check was a little over $1,400. That’s under $17,000 a year—barely above the poverty line for a two-person household. Do you really want to live at the poverty line in retirement? Why in the world would you plan for that?

But sadly, many people are. According to a recent study, 53 percent of un-retired baby boomers have no retirement savings. That means they’re planning to rely on Social Security for their retirement income.

That’s them.

Don’t let it be you.

Here’s the right way to prepare for retirement:

First, get on a budget. I don’t care if you’re 55 or 25. I don’t care if you’re making $400,000 a year or $40,000 a year. You need to have a plan for your money. I love motivational speaker John Maxwell’s line that “a budget is simply telling your money where to go instead of wondering where it went.”

That means knowing, before the month starts, where every dollar you make is headed. Whether it’s the mortgage or rent or groceries or a car payment or whatever, you need to give every dollar an assignment.

Second, attack and avoid debt like the plague. Most Americans spend 25% of their income paying off debt. Imagine how much money you could save if you didn’t have this albatross around your neck.

Well, actually, you don’t have to imagine. Again, it’s simple math. A 30-year-old investing $500 a month in an investment fund with a six percent annual return will have over a million dollars by the time he’s 70.

So make a plan to get rid of your debt for good. I like the “snowball method.” List your debts, smallest to largest, putting every extra dollar you have toward the smallest while making minimum payments on the rest. Once the smallest is paid off, roll that payment into the next-smallest. And do this until all of your debt is paid.

Finally, put Social Security in perspective. Anything you get from it should be considered a fringe benefit—icing on the cake, not the cake itself. There’s nothing wrong with getting Social Security checks. After all, you earned it by contributing to the system all those years. But there is nothing “secure” about Social Security. The last thing you want to do is rely on it.

If you do, well—good luck.

I’m Chris Hogan for Prager University.

Download a PDF of this Transcript

PragerU is changing the minds of millions worldwide.Help us keep our videos FREE!

More 5-Minute Ideas

Every American Needs To Hear This Speech

14.6M Views

Was the Civil War About Slavery?

27.4M Views

Who Was Paul Revere and Why Should You Care?

2.1M Views