Laura interviews Bill Rainaldi, a financial services and Social Security expert, about the program and what the future may hold for retirees.
Laura interviews Bill Rainaldi, a financial services and Social Security expert, about the program and what the future may hold for retirees.
Laura answers a listener's question about using a 401(k) and whether now is a good time to invest.
Money Girl is hosted by Laura Adams. A transcript is available at Simplecast.
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Hey friends, welcome back to episode 926 of the Money Girl Podcast! I'm Laura Adams, an award-winning author, on-camera spokesperson, female money speaker, founder of The Money Stack, a Substack newsletter, and host of Money Girl with over 44 million downloads. You can always connect with me and learn more at LauraDAdams.com.
If one of your goals is having a comfortable retirement, claiming Social Security benefits may be a key part of your plan. It pays benefits to more than 50 million qualifying Americans who reach a set retirement age, survive the death of a spouse or close family member, or are disabled. Even if you’re decades away from retirement age, understanding how to qualify for Social Security and getting the highest possible benefit is critical.
I’m excited to be joined by a Bill Rainaldi, an author, Social Security specialist, and Senior Financial Services Consultant at Security Mutual Life Insurance Company of New York. He’s also a host of the SML Planning Minute Podcast.
I wanted to talk with Bill about what’s going on with the Social Security program, where it may be headed in the future, and how to discern fact from fiction. We have a great conversation discussing the following:
So here's my interview with Bill.
Laura Adams
Bill, thank you so much for coming on the Money Girl Podcast again.
Bill Rainaldi
It's been a few years, but I'm so happy to be back Laura. Thank you.
Laura Adams
Yeah, so you are a specialist in something that really affects all of us, Social Security. Well, I'll say most of us, know, not all of us, if you have a job where you're not paying into Social Security, maybe, you know, it doesn't affect you if you have a pension. But for the majority of us, we are really counting on some portion of Social Security to make up our lifestyle in retirement.
It really does affect how we plan, how we think about future expenses, think about what we should be investing in right now to make up that shortfall. Social Security is not going to cover all of our expenses, nor was it ever created to be our entire income in retirement. So, I would love to hear from you about what's happening. What's happened with Social Security maybe in the past couple of years that people should be aware of and thinking about as they plan?
Bill Rainaldi
Well, when I talk to consumers about Social Security, they have two basic questions. The first one is, when should I collect? And the second one is, is it still going to be there? And that's been a bigger focus recently because they have these two trust funds in Social Security where the money that gets withheld from your paycheck, 6.2% of your pay up to $176,100. That money goes into this trust fund and that's the money that's used to pay the benefit later on.
Now the problem is that for the past couple of years the balance in those two trust funds has been gradually dissipating and as of the report, the trustee's report from last year, the trust fund is expected to expire by the year 2035, meaning they're going to run out of money. Now, some people hit the panic button and say oh my god it's not going to there anymore. Well, that's not quite true. It's still going to be there if nothing is done between now and then, it's still going to be there.
However, there's going to be a reduction in the benefits across the board if they don't fix this problem. And the reduction is estimated right now to be 17%. So starting in 2035 if nothing happens, every Social Security check would be reduced by 17% now that was as of last year's trustees report.
There have been a couple of developments this year 2025 that make the situation a little bit more dicey. First of all, in early January they passed a new law called the Social Security Fairness Act and that affects probably about 3.2 million people
who are going to get a higher Social Security check and those are people who worked or are the spouses of people who worked in what you talked about earlier a non-Social Security job.
In other words, if you were a state employee they might have an alternate program that you pay into a state pension where they won't pay into Social Security and they would not have had a Social Security benefit they change the rules on that they were repealed to provisions to give those people more money.
Now, that's good news certainly if you're one of those people. However, the bad news is getting back to the Social Security Trust Fund, this is going to drain that trust fund even further. So, the Congressional Budget Office estimates that because of this change in the law, the trust fund is going to be dissipated six months earlier than was earlier projected.
So, the next trustees report will come out in a couple of months and we'll have to see what it says. But I wouldn't be surprised if they moved up what I refer to as doomsday by a year. So, it would be even sooner that they have less time to actually fix the problem. The second thing is that a lot of people don't realize that when they pay their income taxes, if you're collecting Social Security, the income taxes that apply specifically to your Social Security benefit that you're collecting go back into the trust fund.
So, now they're talking about the possibility of making Social Security income tax free. If that's the case, that's going to dissipate the trust fund even further and going to make the situation even worse so that this problem that's off on the in the distance is going to get a little closer to reality a little bit sooner.
And listen, I think both of these ideas, know, the Social Security Fairness Act and possibly getting rid of income tax on Social Security income, they're great for what they do. But you got to understand that there's a much bigger problem that they're actually making worse by doing those two things if they do both of them. It's really going to have an impact and it's really going to make them move more quickly on on the bigger problem, is the funding of those benefits.
Laura Adams
So let me ask you a question, and I don't like to get too political on this show, but Elon Musk called Social Security a Ponzi scheme. Tell me what you think about that comment.
Bill Rainaldi
First of all, I don't think it's a Ponzi scheme. Okay, I Understand where he's coming from, however, with a typical Ponzi scheme, for example like Bernie Madoff, the money that came in the new money was used to pay the old money. Right, and that's what a Ponzi scheme is. But the difference between this and a Ponzi scheme is it was two things.
First of all, unlike Bernie Madoff Everybody knows what's going on here. Okay with a Ponzi scheme, a true Ponzi scheme, nobody finds out until all the money's gone. That's the first thing. The second thing that's different between this and what is traditionally known as a Ponzi scheme is the fact that the government has the ability to raise taxes. So they can solve the problem if they've got the will to do it and everybody knows about it. So yes and no, it has some aspects of a Ponzi scheme, but no, I don't think Social Security is a Ponzi scheme.
Laura Adams
So what you're saying is that there is accountability for the funds. We know where they're coming from, and they are truly dedicated to paying the retirees or whatever benefits are dedicated there. It's not getting paid to some other department and then, you know, having to take money from some unknown place. It is a dedicated fund. And as you mentioned, that's how we know that it could run out at a certain date.
So as scary as that sounds, you mentioned raising some of the, perhaps the payroll tax for Social Security. Many people don't realize that there is a cap. You don't pay tax on all of your income if you're a high earner. That raise could certainly fund more of the recipients.
Do you think that might be the solution simply raising the payroll tax or maybe are there a combination of solutions that could help this doomsday problem, as you said?
Bill Rainaldi
Well, I'll tell you what Laura I think people a lot of people don't realize that we have faced this before in our past. Back in 1983 right now that the combined trust funds have about two point seven trillion dollars at it back in 1983 they were in within six months of going to zero on that trust fund. So they had to come up with a long term solution and the long term solution that they came up with is a combination of what you just talked about raising the payroll taxes in this case.
They raised a percentage and then also another option which is raising full retirement age. Now, I must say that when they raised full retirement age the problem with doing that is that people refer to that as a benefit cut and that I mean technically that is true when you raise full retirement age. It is a benefit cut across the board.
But those are the two options raising the tax or cutting the benefits. But when they raised full retirement age back in 1983, it was so gradual as to hardly even be noticeable I mean, you know, the thing is they raised it in 1983 Here we are all these years later that change still has not been fully implemented yet. It will be 2027 when
full retirement age for workers will be age 67 which was their original intent.
It took them over 40 years to get that up there. So you can see that really didn't do much and they did it in such a way as to not offend too many people because the people who were paying the brunt of that were all young kids at the time and they didn't even care. Nobody cared about them at that point. Increasing the tax back then was the primary strategy that they used and I would argue that right now It's the most likely at this point just because it's probably the easiest to sell
Laura Adams
Right, yeah. It is an interesting dilemma and it really is going to depend on the political capital of the folks that are in charge of this. You know, how much they feel empowered to make these changes. I mean, how do you think we got here in the first place? Is it because we just have a larger population that is collecting the benefit?
Is that part of the issue or are people paying in less because salaries are lower? Why are we facing this problem to begin with?
Bill Rainaldi
I think there are two things I would point out first of all getting back to the concept of raising full retirement age. Understand with it when Social Security first started back in the 1930s full retirement age was 65 and by 2027 it will be 67 now. What do you think has happened to life expectancy in the past 80 years or 90 years? It's gone up by more than just those two years. So yeah, I mean I think a bigger percentage of the population is collecting Social Security and that's one of the reasons we're in the position we are now.
Another one which doesn't get a lot of press attention I don't think but not as much as it deserves is the fact that with these Social Security trust funds with the two point seven trillion dollars. By law since the beginning they've only been able to invest in one thing and one thing only and that's non marketable government securities basically Treasury bonds.
I mean you remember what it was like a few years ago what interest rates were these things play a market interest rate and When interest rates are very low the return on the assets in the trust funds is also very low If they had and this is just speculation on my part, but I think if they had allowed back then, the trustees to kind of treat the trust fund almost like a college endowment where you spread the money around some put some money in equity some money in corporate bonds, maybe some alternative investments and stuff like that, they would have gotten a better return on that money. And we might not be in this position today If they had been a little bit more aggressive, I think in investing that money, but by law they can't right by law. They can only buy government bonds.
Laura Adams
Okay, so low returns, more people collecting, people collecting longer, all of these things are just contributing to the problem. And as you said, we have other things that are going to affect it as well if we don't make some serious changes. I mean, if you were in charge of this Social Security Trust Fund, what do you think would be maybe the easiest, least painful solution that we could begin maybe within the next few years to kind of turn this around?
Bill Rainaldi
Well, first of all, to me, it's almost comparable to saving for your retirement. If you save for your retirement, you decide to start when you're 60 years old, you're going to have a big problem, don't you think? It'd be much better off starting at age 30 or whatever it is. That's what happened last time. And it looks like we're heading towards that same thing, where we almost have to get to the precipice to actually work on a real solution to the problem.
If we start as soon as possible, it becomes easier to solve that problem. So that's the first thing I do is I would move right away. You could make an argument Laura for in addition to that, you can make an argument for the idea that, you know, Social Security withholding taxes only go up to the current value is $176,100. If you make more money than that, as you pointed out, you don't pay any Social Security withholding on that extra money above that amount now you don't get a retirement benefit either do you?
You just don't you did you know, so if you think of it as a retirement plan, that's a little bit of an issue, but I think increasing those Increasing the amount you pay above that would be the quickest and easiest way to solve the problem. I think you have to look at longevity as well as people are living longer. They're spending more time collecting Social Security and a lot more people it seems to me now a lot more people are living well into their 90s and they're collecting Social Security for 30 years I don't know if that was ever anticipated. So I think you could make a case for also increasing full retirement age from something beyond age 67 as well.
Laura Adams
Yeah, when you think about Social Security as a lifetime guarantee of income that is adjusted for inflation, it is an incredibly valuable benefit. It's something that people would be incredibly fortunate to have a pension that gave them a lifetime guarantee with inflation adjustment.
I think a lot of people really underestimate its value and what it is and kind of just feel like, hey, I've paid in and I'm deserving of this without really thinking, okay, I would have to have probably several million dollars in an account today to generate that kind of income for life. It is just something that maybe we don't appreciate because we're just sort of used to hearing about retirement benefits and it's just coming to you, maybe the government really needs to also sort of explain what folks are getting from this and trying to make people understand the real value of it.
And as you said, maybe asking people who are high earners to pay in a little bit more. As you mentioned, it's not going to increase their benefit per se. but perhaps those who can afford to pay a little bit more, we raise that cap so that it is something that's kind of distributed a little bit more for everybody.
Those who are lower paid throughout their career are definitely getting more out of Social Security, right, as a percentage of, let's say, a replacement of income. So lower income folks do get an incredibly good benefit from it. And then that decreases a little bit in terms of a percentage of income as you earn more.
Maybe there is an opportunity to let folks that are very high earners opt out or, you know, if people are not even really in a position where they're ever going to need that income. Maybe another solution is making that an option for folks who are very high income, of just saying, hey, if this is your annual income above a million dollars, you're going to become ineligible for this benefit. mean, do you think something like that could happen as we sort of think about how valuable this benefit is to somebody who may not need it?
Bill Rainaldi
Well, you know if that's something I've looked at Laura and first of all, want to emphasize something you just said which is those cost of living adjustments that you get with Social Security are critical particularly for lower-income people now getting back to what you were just talking about Means testing of Social Security benefits just keep in mind that if you said for example if you make over a million dollars a year, you would have to forfeit your Social Security benefit.
That sounds like a good idea. The problem is with this that even if you maxed out your Social Security Let's say you paid the full amount the maximum out you could for 35 years and you waited till age 70 to start collecting under those circumstances. I think the maximum benefit you can get out of Social Security is somewhere between 60 and 70 thousand dollars a year. And the average benefit of course is much less than that.
But that's the that's the issue right there. If you said to people who make a million dollars a year, you have to give up your benefit. That's all well and good. The issue is that I'm not so sure how effective that would be simply because the number of people would be giving up who would be giving up that benefit is relatively small. And the amount that they would be giving up is a lot for most people.
But small relative to this Social Security Trust Fund, which as I said has $2.7 trillion in it and we're talking about giving up 60 or $70,000 a year per person. You'd have to have a lot of people to have a real impact that way. So that's one of the reasons I think when people talk about this, they don't talk as much about means testing as they talk about either increasing the tax or decreasing the benefits.
Laura Adams
Yeah, and I don't know if I'm a big fan of means testing. I just think it is certainly one solution we hear and could be a part of it. as you mentioned, it may be a very small percentage of folks that it would apply to.
If somebody is very new to Social Security, they're not familiar with the program, can you outline just the basics on how do you qualify for benefits and how is that benefit calculated when you eventually do qualify to collect and claim it?
Bill Rainaldi
It's perfectly simple, hahaa! So, in order to qualify for your own personal Social Security benefit you have to work the equivalent of 10 years 40 quarters basically to qualify for your own benefit if you work nine and a half years your Social Security benefit on a personal level is zero Now when you actually do start collecting you can collect as early as age 62 or as late as age 70 When you do start collecting
They calculate the benefit by looking at your highest 35 years of earnings. So that means if you worked 25 years, then you have 25 years of earnings plus 10 years of zeros factored in. So you're going to get a lower benefit. Now, when they calculate the benefit, they have these things called bend points, which basically means that, as you mentioned earlier, a person with a lower income is going to get a better deal basically on Social Security then getting it more their income replaced by Social Security than a person with a higher benefit.
You can go on to SSA.gov and get your own statement and I would encourage everybody to do that just to see what your projected benefit is even if you're a young person It might give you quite an education.
There are two other benefits I think should be mentioned here. The first one is what's called a spousal benefit. So, if you are married and you personally don't qualify for a benefit or you have a very small benefit You can still get up to half of your spouse's benefit when it's time for you to collect and Then a really big factor that most people don't consider is a survivor benefit for a married couple The survivor benefit once you get past a certain age is basically the higher of the two benefits
So if I'm collecting $2,000 and my wife is collecting $1,000 if something happens to me She moves up to my benefit. So she starts collecting the $2,000 That's a very important consideration when you're trying to figure out exactly when you want to collect Because if you have the higher benefit it might pay for you to wait a little longer than you otherwise would Just so your spouse would get a survivor benefit, but those are the most important things I think people need to know about Social Security.
Laura Adams
Yeah, and it is confusing. So the spousal benefit is if your spouse is still alive. The survivor benefit is if they are not alive. There is a lot of complexity there. But as you mentioned, if you know, a lot of people do have that strategy, let's claim the lower earning spouses benefit first and wait and collect the higher earning spouse's benefit later, maybe waiting to age 70, because then that surviving spouse is going to be eligible for a higher benefit.
And it's a significant difference, right? I mean, we're talking about 25 % more in benefits if you wait to age 70 than if you're claiming is that from full retirement age or would that be from early retirement?
Bill Rainaldi
Yeah, basically it's if you let's say your full retirement age is age 67 if you collect at age go back and collect at age 62, your benefit’s going to be reduced by 30%. So with my $2,000 It's going to be less than that if you wait longer It's 8 % per year increase for every year you wait. So in my case collecting at age 67, that would be 24 % more money you would get by waiting and you know one of the things that people have to consider is not only their own longevity, but their cash needs of course and you know their spouse's longevity.
Unfortunately, it's gotten so complicated Laura that there's a lot that you need to a lot of factors that go into it But basically yeah, the longer you wait the more money you're going to get up until age 70 and you would never wait past age 70 to start collecting.
Laura Adams
Yeah, so beginning to draw from your own retirement funds, perhaps if you decide to retire at 65, maybe you say, well, I'm going to pull from my own retirement funds for five years and let that Social Security kind of cook and give me the higher benefit at age 70. But as you mentioned, it really does depend on what's happening with your finances, your spousal needs, what are your goals? Do you have a legacy that you want to leave?
All of these things really play into it. So it does, I think it does warrant getting some very specific guidance and help. Don't ever just claim Social Security because you think, oh, well, I'm 62, I'm supposed to claim now, it's time. Really think it through and get some help with that decision because reversing that, it is possible, right, but it's not necessarily going to be an easy decision if you decide to change something.
And I think the Social Security staff and resources is only getting, you know, more of a skeleton crew. So it could be more and more difficult to get answers from experts if you need a complex issue resolved.
Bill Rainaldi
Yeah, and the one other thing I would just mention very quickly Laura is to understand a lot of people the most popular age to collect Social Security is age 62. So people want to collect as early as possible possibly because of all this stuff with the trust fund they think that it's not going to be there so I got to get what I got to get while I can get it.
Just understand that if you collect before your full retirement age, they also have this thing called the earnings test which means it makes it very difficult to keep working at your job and collect early on your Social Security. The threshold this year is $23,400. That means if you make more than that in wages this year, they start reducing your Social Security benefit if you're collecting prior to full retirement age. And it could completely eliminate that benefit if you make that much money in wages. So that's something to watch out for.
Laura Adams
Do you get that money back ever?
Bill Rainaldi
Is there ever a simple answer to any question with Social Security? The answer is that technically you do. Let's say you filed at age 62 and you made a hundred thousand dollars and you didn't tell them But then they're good. They take back all your money all the all your collection that stays that way for the five years until age 67 So you filed at 62 you never got anything because you made too much money all the way along in that circumstance What they would do is when you get the full retirement age?
Age 67 they would start treating you as if you retired at age 67 So they basically give back the months where you had to give up your benefit in that interim time So the question is what is it worth the bother under those circumstances and you know, I don't know but that's the way they do it It's not easy to explain but it's just the way it is.
Laura Adams
And as you mentioned, if you are low income and you need those benefits to live, absolutely, you know, claim benefit as early as you can. But if you have other retirement savings that you could live off for several years, I think that's where you know, the issue kind of comes in, should I draw from that? Or should I rely on Social Security? And it's going to be a different answer for everybody's situation.
So I appreciate you getting into the weeds here because I think just explaining to folks that it is a complex issue and you might talk to one person and get one answer and talk to another expert and get a completely different answer. So you really want to get some solid guidance, especially as you get close to 62 and you begin thinking about what's my plan here? How am I going to retire? When am I going to retire? And really factor Social Security into it.
Bill Rainaldi
Yeah, and one of the biggest mistakes I think people make is that they try to figure it out themselves. And as you can tell, there's a lot of nuance here. And this is one case where I strongly urge anybody to seek professional help before you make a decision.
Laura Adams
Bill, are there any big misconceptions or myths that people should keep in mind as we are really hearing a lot in politics right now about Social Security and they may be feeling scared, anything to just maybe calm people down or give them a little bit of hope about their future?
Bill Rainaldi
Well, first of all, I cannot 100% predict what's going to happen, but I would be shocked if we ever saw the day when the Social Security Trust funds ran out of money. I just think there'd be there's just too much pressure in Washington on people would be rioting in the streets if that ever happened. So I just don't see that happening. I could be wrong, but I just don't think it's very likely at all.
Now, the other issue with that is if somehow it did what should you do and I haven't seen a lot of analysis on this but one. Analyst who I respect a great deal a guy by the name of David Blanchett did an analysis of what happens if these cuts actually take place, and the question was as we discussed before.
People who think that's going to happen tend to want to collect as early as possible to get theirs while it's available. That's not necessarily the best thing to do even if the cuts take place. The mathematical analysis is a little bit tricky. But just understand that if you wait to collect your benefit and then it gets cut subsequent to that you still have a bigger benefit than you would have had otherwise from Social Security, right? It's not like it's going to zero. You'll still have the biggest benefit you could have. And under those circumstances, very often it's the case that whatever you decide to do, the reduction of the benefit is not going to make the choice any different.
So I hope that makes sense. Just keep that in mind. Just stay the course is probably the best recommendation I can make to anybody right now.
Laura Adams
Yeah, that's great advice. And I agree with you, I really can't see it being cut. There are just too many people who are collecting and the folks who are some of our most vulnerable in our society. So, you know, it's very difficult to see how someone who had paid into the system throughout their whole career could be put in jeopardy. I think it's probably more likely that the younger people today, you know, could see some changes in terms of, as you mentioned, and raising the retirement age, raising the cap or the tax for those who are still working.
But we don't know. politics changes and we have different people in and out and different people in Congress that have different ideas and opinions and constituents that want certain things. What may happen in the next couple years could completely change, you know, in the years after that. So if you are on the cusp of, of claiming, you know, I think, again, it just comes down to figuring out what's best for you. But if you've got decades to go, I think it's too, it's too soon to worry, you really just kind of have to, to understand that the program is, is well funded and can be easily more well-funded with just a few very simple tax changes.
Bill Rainaldi
Exactly. Couldn't have said it better.
Laura Adams
Bill, thank you so much. This is a really complex topic and I appreciate you bringing your expertise just to chat it through. And if you've got any resources or any place you'd love listeners to go, let us know if there's some place you'd like them to connect with you.
Bill Rainaldi
I am an employee at Security Mutual Life in Binghamton, New York, and we have our own podcast where we talk about a lot of these things. It's called the SML Planning Minute, and I think that's a great place to connect because we talk about a lot of subjects, not just Social Security, but it's only anywhere between five to 10 minutes a week.
Laura Adams
What kind of topics do you cover?
Bill Rainaldi
Well, let's see. We cover, for example, are these the good old days? Or I'm doing one right now on lifestyle creep. The idea is that as you make more money, your spending habits get more accelerate with them and it may become more difficult to save money. We've done things on celebrity estates. We've done things on behavioral economics and a bunch of other topics we thought we do a few insured life insurance topics too because we are a life insurance company But I I think it's pretty good myself.
Laura Adams
Tell us the name of the show one more time.
Bill Rainaldi
It is the SML, Security Mutual Life Planning Minute. It's available on all the regular podcast outlets.
Laura Adams
Love it. Everybody check it out. Bill, thank you so much for coming on and I really appreciate you. I think maybe you're the only guest I've had twice on the show. So it's good to have you back.
Bill Rainaldi
Well, is an incredible honor, Laura. Thank you very much. I'm a big fan of the show and I'm so happy to be here.
Laura Adams
A big thanks to Bill for sharing his expertise with us!
That's all for now. I'll talk to you soon. Until then, here's to living a richer life!
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