August 14, 2025 • 21 mins
In this episode, Laura Neal, CFP®, and Vic Colella, CFP®, CDFA®, take a walk down memory lane to detail the changes to the US Social Security system since the 1970s. We share our takeaways, ways to fund the shortfall, and how this should impact your Financial Plan.
If you have suggestions for episode topics or would like to give us feedback, we would love to hear from you! Please email us at podcast@woodwardadvisors.com.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Victor Colella (00:31):
Hello everyone, and welcome to another episode
of Your Money in 20, a podcastby your friends here at Woodward
Financial Advisors.
I'm joined today by Laura Neal,a regular here.
Hi, Laura.
Laura Neal (00:42):
Hi Vic.
Always glad to join you.
Victor Colella (00:45):
Yeah, so Laura, uh, we are here today to talk
about social security.
Everyone's either favorite orleast favorite topic or source
of anxiety, uh, especially inthe latter months here.
So.
Um, we're looking forward todigging in there.
I'll talk more about what that'sgonna be.
Uh, before I do, I like to sayour disclaimer, which is that
(01:07):
you're gonna hear about a lot ofthings, some tax related, some
obviously related to socialsecurity.
Um, none of what we talk abouthere today is meant to be advice
for your specific situation.
If you need tax advice, go to atax professional.
If you need investment advice,talk to your financial advisor.
We know if you, if you don'thave one, um, and if you need
legal advice, talk to anattorney.
(01:28):
With that outta the way, Laura,uh, what are we gonna talk about
with Social Security today?
Laura Neal (01:34):
Well, Vic, we're gonna start out with kind of a
brief history.
So I'm sure that most peoplethat are listening to us today,
um, this isn't the first time intheir lives.
That there has been worrysurrounding, uh, is social
security gonna be around for thelong haul?
And so we thought we kind ofstart out going back and giving
(01:56):
you a brief history and time ofthe Social Security system, and
then we'll kind of wrap up withand what it means for you and
your financial plan.
Victor Colella (02:09):
Yeah.
Yeah, we, we often talk whenclients bring up social
security, uh, either.
Uh, you know, in any way werefer to the history, but we
don't just off the top of ourhead have, well, here's what
happened in this year.
Here's what happened in thatyear and how it took effect.
We don't have time for that,usually in the context.
So we're gonna dig deep todayand talk history.
(02:30):
So, Laura, what I'll do, I canjust sort of kick off, uh, you
know, the dates of majorchanges.
You can give a littledescription of what, what
happened, and we can talk alittle bit about each.
Laura Neal (02:41):
Sounds
Victor Colella (02:42):
good?
Laura Neal (02:42):
Mm-hmm.
Victor Colella (02:43):
All right.
So, so first of all, 1977.
So social security, I, I believeit, we didn't actually find this
date, but I think it was thelate 1930s when it went into
place, but it was a, it was aproduct of the Great Depression.
Uh, so the, the years following,uh, creating some sort of safety
net for folks after the GreatDepression and all sort of the
tragedy around that.
(03:03):
Um, the next major amendmentthat we found was in.
1977.
Uh, so
Laura Neal (03:11):
cool decade.
The decade I was born.
Yeah.
Victor Colella (03:14):
Right, right.
Good music in the seventies.
I'm a fan.
Um.
Laura Neal (03:18):
right.
That's right.
So in 1977, so everybody'sreally familiar now with the
concept of delayed retirementcredits.
And if you don't know what thatmeans, that's that concept of if
you wanna wait and not claim atfull retirement age.
Um, you can get an increasedmonthly benefit, for every
(03:42):
month.
You wait year, you wait up untilage 70.
So this actually started in this1977 amendment they made.
Um, the beginnings of this wentinto effect.
You used to be able to waituntil age 72 they backed it up
and said, no, we're just gonnagive you extra credits just
(04:03):
until 70.
So that was kind of the firstthing we found.
That was a major change in thesystem,
Victor Colella (04:10):
Yeah, and I'll just briefly say context.
In the late seventies, uh, atumultuous time in a lot of, a
lot of ways politically, I mean,this is, uh, right in, you know,
the era, uh, where stagflationwa, I mean, the, the oil embargo
was in the early seventies.
You had rampant inflationstagnation in markets.
So wages were not in a goodplace.
(04:32):
So this was a result of.
Laura Neal (04:35):
Yeah.
Yeah.
Victor Colella (04:36):
Financial troubles, payouts were
increasing because of inflationadjustments, but pay in was
decreasing because ofunemployment and a bunch of
other sort of factors around it.
So context matters becausewe're, many people are worried
today because of context that issimilar.
So that's what was going on inthe late seventies.
Laura Neal (04:58):
Yeah.
Victor Colella (05:00):
All right.
Should we move on to the nextmajor change, or do we have
anything else?
I.
Laura Neal (05:05):
no, I, I, I guess I'll just say that, um, just for
further context in that you getan 8% per year bump.
So if your full retirement ageis 66 and eight months or 67,
you get 8% per year.
So that's,
Victor Colella (05:22):
Yeah,
Laura Neal (05:22):
of how it ended up, um, flushing out in the end.
Victor Colella (05:27):
and that's still what it is today.
So that hasn't changed since thelate seventies.
Um.
Laura Neal (05:32):
Mm-hmm.
Victor Colella (05:34):
Alright, next one's NI 1983.
So this one is, A lot of folksare familiar with the Reagan era
change.
This was probably the broadest,sweeping change to date.
Uh, I think there have beenother little changes around the
edges we'll talk about, but thiswas a big one.
So, Laura, run through some ofthe changes that, uh, president
(05:57):
Reagan put into place in 83.
Laura Neal (06:00):
I mean, if we put, if we wrote down all the changes
and explained all of them, wecould probably have an hour
podcast here.
Just all the things that wentinto effect in 1983.
Victor Colella (06:11):
Right.
Laura Neal (06:12):
pulled out the ones that, um, stood out as, as big
things that have affected us,you know, even, even now.
So the whole full retirement ageforever, full retirement age was
65.
Everybody knew they could
Victor Colella (06:28):
Mm-hmm.
Laura Neal (06:29):
and that's when they got their full social security
So as a result of what Vic youwere referring to of this time
of inflation and lower jobgrowth numbers, there was not as
much money coming into thesocial security system.
So as a result, one of their,um, reforms that they thought
(06:50):
will help bolster the system iswe'll up the full retirement
age.
But they upped it really, reallyslowly.
So it went from 65 to now theoldest full retirement age is
67, and we were talking aboutthis before the podcast, and so
(07:11):
that really won't fully takeeffect until people start
retiring in 2027.
Victor Colella (07:17):
Yeah.
This blew our minds, uh, alittle bit before this podcast.
So they wrote a, a law change in1983.
Laura Neal (07:27):
Mm-hmm.
Victor Colella (07:27):
That had provisions that weren't fully in
effect until 2027.
They thought we were gonna bedriving around in like Jetson
style cars, uh, back then in2027 and finally that, that
change would be fully realizedfor retirees.
Laura Neal (07:44):
Yep.
Victor Colella (07:44):
That's gradual.
Uh, yeah.
Yeah, yeah.
Yeah.
So both you and I won't getmm-hmm.
Laura Neal (07:50):
another thing is benefits became taxable.
That's so commonplace to us nowthat to 85% of your social
security benefits can be taxablenow, but you.
To have zero tax on'em.
And so they, um, did taxation upto 50%.
Victor Colella (08:11):
Mm-hmm.
Laura Neal (08:11):
to 85%, just up to 50%.
Victor Colella (08:14):
Mm-hmm.
Laura Neal (08:15):
also, new federal employees hired after this 83
amendment were required to joinSocial Security.
Previously they had.
Just their own system.
They weren't part of the socialsecurity system.
And then self-employed workersfaced increased payroll taxes.
So we now know that if you'reself-employed, you have to pay
(08:37):
in both for yourself and for youas an employee or so that used
to not be the case.
Victor Colella (08:46):
Yeah, and, and those are the big ones.
But we encourage you if you,this is interesting to you for
some reason, like it is to usssa.gov.
So they have a history page thatgoes through all past changes in
great detail.
Uh, check it out.
This one is, we've covered maybe20% of the changes.
It's just the big ones.
(09:06):
Um, and yeah, I think there werelots of other changes including
the structure of the trust funditself.
So
Laura Neal (09:13):
and
Victor Colella (09:13):
any.
Laura Neal (09:14):
the 85%.
And so they waited about 10years and they said, uh, you
know, I think 50 percent's notquite high enough attacks.
On the, or not a tax, but thetaxable amount of your social
security benefits.
So they upped it from 50 to 85%in 1993.
Victor Colella (09:35):
Yeah, and, and this is a question we actually
do get a decent amount still,which is our Social security
benefits taxable.
The way that it works is basedupon your other income.
Either zero, 50% or 85% istaxable.
That's still true today.
So 1993 was the last change totaxability rules.
I even think that the bracketshave remained the same, uh,
(09:57):
since then.
Yeah.
Laura Neal (09:58):
goes up pretty quickly
Victor Colella (10:00):
Yeah,
Laura Neal (10:01):
you don't have to make too much to get that full
85% taxed.
Victor Colella (10:07):
yeah.
And, and for example, the, the,the joint filing threshold for
85% is$44,000 today.
It was also$44,000 in 1993.
So in effect, not changing thosebrackets has meant that the
income threshold to be taxed at85% has gone down just because a
dollar's worth a lot more in1993 than it, than it is today.
(10:28):
So just there are some of thosethings that just haven't
changed, which is a way ofadjusting the math for the
system.
Laura Neal (10:34):
Yeah, that's a good
Victor Colella (10:35):
so now fast forward, we're in the, the new
millennium.
It's 2000.
What happened in 2000?
Laura Neal (10:42):
There was another, uh, another social security
bill.
Um, actually two, so there was asmall one, like right at the
turn of the century, um, calledthe.
Senior Citizens Freedom to WorkAct.
And so I think this came aboutas we saw more and more people
working later into their years.
(11:04):
So it used to be that if youchose to work past 65 or
whatever your full retirementage was, you could not claim you
could get your full retirementbenefits through Social
Security.
You got a reduced amount.
And afterwards they said.
No, you can get your fullretirement amount.
We're just gonna tax you on it.
(11:26):
So like we spoke of before.
Victor Colella (11:29):
Yeah.
Laura Neal (11:31):
There was a pretty big change.
Victor Colella (11:32):
Yeah.
And for clarity, that rule isstill in place where your
benefits can be reduced if youearn too much and you claim your
social security retirementbefore your full retirement age,
that's still exists.
If you're both, that's one ofthe reasons we say at least wait
until your full retirement age.
Ideally wait as long as you canbecause.
If you're still working, even,even sort of part-time or
(11:55):
consulting basis, you mayactually get a reduction in your
social security benefits, uh,until you get to full retirement
age.
So that's an important, animportant distinction.
Um, all right, fast forwardagain.
2015 is where we're at now.
What happened in 2015?
Laura Neal (12:12):
Well, so a lot of people would take advantage of
what we would call someloopholes in the system, and so
they would do what was commonlyreferred to as file and
Victor Colella (12:23):
Mm-hmm.
Laura Neal (12:24):
a restricted application.
So oftentimes, you know, if, ifone spouse has.
than twice the benefit of theother.
There's something called aspousal retirement benefit where
you can get at least half ofyour spouse's retirement.
And so, uh, one spouse wouldfile suspend their, uh, benefits
(12:46):
to accrue.
Larger benefits and then takeadvantage of the spouse getting
it.
And, and they finally figuredout that this wasn't good for
the system that was alreadystruggling.
And so they got rid of that.
Um, so just aiming to close someof those loopholes, especially
ones that were benefiting, um,wealthier retirees.
Victor Colella (13:08):
Yeah, I think about this as the, the, the good
old days of retirement socialsecurity planning, because as
advisors, and this is why itbenefited wealthier, uh,
wealthier folks more is that ifthey had somebody who knew how
the system worked, there wereways that you could game it, uh,
and within the law, right?
That's how the law was written.
But not everyone understoodthem.
(13:29):
And it was a time where youcould really, you, there were
some strategic moves that youcould make when filing.
There are still a few of theseleft, but like I sometimes say,
the goodies have all been takenaway from us.
Uh, it's a lot simpler than itused to be, which is a benefit
for everyone.
But some of those strategiesaren't there anymore.
Um, let, let's hit cost ofLiving adjustments briefly.
(13:51):
So, um, because that's the mostrecent changes.
Uh, well actually this happensalmost every year, but yeah.
Laura Neal (13:59):
Yeah.
we adjustments every year, butjust notably that, um, in 2022,
they had a 5.9% adjustment, and23 and 8.7% was.
The highest adjustment since2000, or, I'm sorry, 1981.
So, um, just, just a note thatthey, they did try to bump up
(14:23):
benefits to keep up withinflation that we were seeing at
the time.
Victor Colella (14:27):
Yeah.
Yeah.
Which can create, if wage growthisn't there, it can create a
problem where you're paying inless because wage growth lags
inflation.
That's some of what drove thesechanges back in the eighties.
So it's, it's something to keepyour eye on.
There's gonna have to be changesto make the math work.
'cause everyone likes to pointout in news stories, basically
(14:47):
every couple of years, uh, itgoes through all the major news.
Uh, networks, um, things aregonna have to change.
Uh, so why, why don't weactually shift?
So let's shift to how do weinterpret all of this history,
uh, for our clients' benefitwhen they come and ask us about
social security, I.
Laura Neal (15:07):
Yeah, so I think my biggest takeaway, and as we
were, you know, prepping forthis is that.
A lot of times the fear it whenthese news stories come out is,
am I gonna get a paycheck nextmonth, right?
Am I gonna get my check nextmonth?
Are they gonna cut my benefitsin half?
So I hope you have seen that aswe go through this history
(15:28):
lesson.
that they do is very forwardlooking and sometimes super
forward looking.
Right?
retroactive.
It's never saying, okay, you'vebeen getting$30,000 a month.
We're cutting your benefit inhalf.
So I think, to me, that was mybiggest takeaway.
What do you think Vic?
Victor Colella (15:49):
Yeah, always forward looking.
I mean, some of the taxabilityyou related things would've
changed what you got after tax,if you were making above a
certain amount.
But, um, incremental,retroactive, incremental, uh,
this has been called the thirdrail of politics.
Right, because there is a factthat has been true and is still
(16:11):
true today, is that the, thedemographic group that votes in
the highest frequency are thefolks who are receiving their
social security paycheck, theirsocial security retirement
benefits.
And that's why it is a favoritefootball to generate fear for
political gain.
Both sides do this, right?
It is a, it is a thing that'sbeen happening since it's
(16:33):
existed.
Um.
Tune out the, the, the noisearound that and, and look, use
history as a guide.
There's a reason that this hasbeen true throughout history.
Um, and there will be changes.
Um, without a doubt there willbe changes.
So, Laura, let's talk about howthis should impact your
planning.
So, so you're, you're thinkingabout social security.
(16:55):
When should you file, how shouldyou factor it in when you're
planning for the future?
Uh, you put some thought intothis.
So, so what, what are some ofthe impacts for financial
planning for folks?
Laura Neal (17:07):
I'd say first and foremost that um, you wanna plan
when to take your socialsecurity.
Thoughtfully with a financialadvisor in the context of your
overall financial plan.
We don't want anybody taking,making their social security
decisions around fear, right?
(17:28):
We don't want anybody taking itat 62 because they're afraid the
gonna go away, and then they'regiving up of that benefit.
Um.
Vic laughed at me when I toldhim this story, but I got a
recent issue of my A A RPmagazine, which is a
surprisingly good magazine, um,has, has people on the cover
(17:53):
where I'm like, I
Victor Colella (17:54):
Yeah.
Laura Neal (17:54):
you're my Um, but it was talking about and speaking,
you know, mostly to people whodon't work with advisors, but
about how much money people arelive leaving on the table by
not.
Waiting until age 70 to claimtheir benefits.
Victor Colella (18:14):
Yeah, and I'll say the most important
variables, as Laura was saying,in the context of your financial
plan, it's.
Family longevity matters a lot.
We talk about this a whole bunchwith clients who are thinking
when to file.
Basically there's, there'susually a break even somewhere
around your early eighties whereif you think you're likely to
live beyond that, the strategyof waiting as long as you can
makes sense.
(18:35):
It also, the other variable thatmatters a lot is what's the rest
of your cash flow situation looklike, right?
Do you need the money now?
Uh, do you have other sources topull from?
So that's a big factor too.
Um, there was one that we talkedabout that I wanna mention is.
So let's say you're many yearsfrom being of age to take your
social security benefits.
How should you factor it in?
(18:56):
Should you use the number onssa.gov and say, I'm probably
gonna get that adjusted forinflation?
Well, this is where we do thinkit makes sense to be a little
conservative.
We know based on the math thatthere will be changes.
So that doesn't mean say I'm notgonna get any social security,
that's probably not gonna be.
Correct.
But thinking that you're gonnaget the version of it that
(19:18):
exists today also wouldn't becorrect.
So you could use a lowerinflation rate, you could use
some percentage of socialsecurity.
There are lots of ways that wecan do this.
Um, but it, it is a reality thatthe numbers have to change, uh,
for the math to continue to workover the long term.
And we have no doubt that theywill, um, because of that whole
third rail thing.
(19:40):
Uh.
But, uh, yeah, it makes sense tobe conservative.
Does that make sense, Laura?
Laura Neal (19:46):
Yeah, absolutely.
Victor Colella (19:48):
Well, I think that's, uh, well, we had one
more thing.
Uh, this is, yeah.
Laura Neal (19:53):
to a conference and they gave me a good piece of
advice that I took this weekendand I wanna pass on.
So the social security websitechanged its log in, um,
credentials around March of thisyear.
And so there is a different waythat you have to log in.
So I recommend everybody go tossa.gov.
(20:18):
up your login credentials.
Print out not only yourstatement, but print out your
full earnings history that showsevery single year of what you
earn.
Print that out, put it in yoursafe where you keep your other
documents.
Just a little.
Victor Colella (20:33):
policy.
Yeah.
Yeah.
Perfect.
Well, thank you Laura.
This has been great.
I learned a few things in doingthe research here, and we hope
it's helpful for all, all ofyou, uh, potential social
security recipients in thefuture out there, um, or current
recipients.
So thanks a lot.
Thank you for listening toanother episode of Your Money in
(20:54):
20, the podcast by your friendshere at Woodward Financial
Advisors.
We hope you enjoyed it.
Now, if you'd like to continuethe conversation, you could find
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(21:16):
a topic you'd like to hear moreabout.
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Thanks again for listening andtalk to you next time.
Hello everyone, and welcome to another episode
of Your Money in 20, a podcastby your friends here at Woodward
Financial Advisors.
I'm joined today by Laura Neal,a regular here.
Hi, Laura.
Laura Neal (00:42):
Hi Vic.
Always glad to join you.
Victor Colella (00:45):
Yeah, so Laura, uh, we are here today to talk
about social security.
Everyone's either favorite orleast favorite topic or source
of anxiety, uh, especially inthe latter months here.
So.
Um, we're looking forward todigging in there.
I'll talk more about what that'sgonna be.
Uh, before I do, I like to sayour disclaimer, which is that
(01:07):
you're gonna hear about a lot ofthings, some tax related, some
obviously related to socialsecurity.
Um, none of what we talk abouthere today is meant to be advice
for your specific situation.
If you need tax advice, go to atax professional.
If you need investment advice,talk to your financial advisor.
We know if you, if you don'thave one, um, and if you need
legal advice, talk to anattorney.
(01:28):
With that outta the way, Laura,uh, what are we gonna talk about
with Social Security today?
Laura Neal (01:34):
Well, Vic, we're gonna start out with kind of a
brief history.
So I'm sure that most peoplethat are listening to us today,
um, this isn't the first time intheir lives.
That there has been worrysurrounding, uh, is social
security gonna be around for thelong haul?
And so we thought we kind ofstart out going back and giving
(01:56):
you a brief history and time ofthe Social Security system, and
then we'll kind of wrap up withand what it means for you and
your financial plan.
Victor Colella (02:09):
Yeah.
Yeah, we, we often talk whenclients bring up social
security, uh, either.
Uh, you know, in any way werefer to the history, but we
don't just off the top of ourhead have, well, here's what
happened in this year.
Here's what happened in thatyear and how it took effect.
We don't have time for that,usually in the context.
So we're gonna dig deep todayand talk history.
(02:30):
So, Laura, what I'll do, I canjust sort of kick off, uh, you
know, the dates of majorchanges.
You can give a littledescription of what, what
happened, and we can talk alittle bit about each.
Laura Neal (02:41):
Sounds
Victor Colella (02:42):
good?
Laura Neal (02:42):
Mm-hmm.
Victor Colella (02:43):
All right.
So, so first of all, 1977.
So social security, I, I believeit, we didn't actually find this
date, but I think it was thelate 1930s when it went into
place, but it was a, it was aproduct of the Great Depression.
Uh, so the, the years following,uh, creating some sort of safety
net for folks after the GreatDepression and all sort of the
tragedy around that.
(03:03):
Um, the next major amendmentthat we found was in.
1977.
Uh, so
Laura Neal (03:11):
cool decade.
The decade I was born.
Yeah.
Victor Colella (03:14):
Right, right.
Good music in the seventies.
I'm a fan.
Um.
Laura Neal (03:18):
right.
That's right.
So in 1977, so everybody'sreally familiar now with the
concept of delayed retirementcredits.
And if you don't know what thatmeans, that's that concept of if
you wanna wait and not claim atfull retirement age.
Um, you can get an increasedmonthly benefit, for every
(03:42):
month.
You wait year, you wait up untilage 70.
So this actually started in this1977 amendment they made.
Um, the beginnings of this wentinto effect.
You used to be able to waituntil age 72 they backed it up
and said, no, we're just gonnagive you extra credits just
(04:03):
until 70.
So that was kind of the firstthing we found.
That was a major change in thesystem,
Victor Colella (04:10):
Yeah, and I'll just briefly say context.
In the late seventies, uh, atumultuous time in a lot of, a
lot of ways politically, I mean,this is, uh, right in, you know,
the era, uh, where stagflationwa, I mean, the, the oil embargo
was in the early seventies.
You had rampant inflationstagnation in markets.
So wages were not in a goodplace.
(04:32):
So this was a result of.
Laura Neal (04:35):
Yeah.
Yeah.
Victor Colella (04:36):
Financial troubles, payouts were
increasing because of inflationadjustments, but pay in was
decreasing because ofunemployment and a bunch of
other sort of factors around it.
So context matters becausewe're, many people are worried
today because of context that issimilar.
So that's what was going on inthe late seventies.
Laura Neal (04:58):
Yeah.
Victor Colella (05:00):
All right.
Should we move on to the nextmajor change, or do we have
anything else?
I.
Laura Neal (05:05):
no, I, I, I guess I'll just say that, um, just for
further context in that you getan 8% per year bump.
So if your full retirement ageis 66 and eight months or 67,
you get 8% per year.
So that's,
Victor Colella (05:22):
Yeah,
Laura Neal (05:22):
of how it ended up, um, flushing out in the end.
Victor Colella (05:27):
and that's still what it is today.
So that hasn't changed since thelate seventies.
Um.
Laura Neal (05:32):
Mm-hmm.
Victor Colella (05:34):
Alright, next one's NI 1983.
So this one is, A lot of folksare familiar with the Reagan era
change.
This was probably the broadest,sweeping change to date.
Uh, I think there have beenother little changes around the
edges we'll talk about, but thiswas a big one.
So, Laura, run through some ofthe changes that, uh, president
(05:57):
Reagan put into place in 83.
Laura Neal (06:00):
I mean, if we put, if we wrote down all the changes
and explained all of them, wecould probably have an hour
podcast here.
Just all the things that wentinto effect in 1983.
Victor Colella (06:11):
Right.
Laura Neal (06:12):
pulled out the ones that, um, stood out as, as big
things that have affected us,you know, even, even now.
So the whole full retirement ageforever, full retirement age was
65.
Everybody knew they could
Victor Colella (06:28):
Mm-hmm.
Laura Neal (06:29):
and that's when they got their full social security
So as a result of what Vic youwere referring to of this time
of inflation and lower jobgrowth numbers, there was not as
much money coming into thesocial security system.
So as a result, one of their,um, reforms that they thought
(06:50):
will help bolster the system iswe'll up the full retirement
age.
But they upped it really, reallyslowly.
So it went from 65 to now theoldest full retirement age is
67, and we were talking aboutthis before the podcast, and so
(07:11):
that really won't fully takeeffect until people start
retiring in 2027.
Victor Colella (07:17):
Yeah.
This blew our minds, uh, alittle bit before this podcast.
So they wrote a, a law change in1983.
Laura Neal (07:27):
Mm-hmm.
Victor Colella (07:27):
That had provisions that weren't fully in
effect until 2027.
They thought we were gonna bedriving around in like Jetson
style cars, uh, back then in2027 and finally that, that
change would be fully realizedfor retirees.
Laura Neal (07:44):
Yep.
Victor Colella (07:44):
That's gradual.
Uh, yeah.
Yeah, yeah.
Yeah.
So both you and I won't getmm-hmm.
Laura Neal (07:50):
another thing is benefits became taxable.
That's so commonplace to us nowthat to 85% of your social
security benefits can be taxablenow, but you.
To have zero tax on'em.
And so they, um, did taxation upto 50%.
Victor Colella (08:11):
Mm-hmm.
Laura Neal (08:11):
to 85%, just up to 50%.
Victor Colella (08:14):
Mm-hmm.
Laura Neal (08:15):
also, new federal employees hired after this 83
amendment were required to joinSocial Security.
Previously they had.
Just their own system.
They weren't part of the socialsecurity system.
And then self-employed workersfaced increased payroll taxes.
So we now know that if you'reself-employed, you have to pay
(08:37):
in both for yourself and for youas an employee or so that used
to not be the case.
Victor Colella (08:46):
Yeah, and, and those are the big ones.
But we encourage you if you,this is interesting to you for
some reason, like it is to usssa.gov.
So they have a history page thatgoes through all past changes in
great detail.
Uh, check it out.
This one is, we've covered maybe20% of the changes.
It's just the big ones.
(09:06):
Um, and yeah, I think there werelots of other changes including
the structure of the trust funditself.
So
Laura Neal (09:13):
and
Victor Colella (09:13):
any.
Laura Neal (09:14):
the 85%.
And so they waited about 10years and they said, uh, you
know, I think 50 percent's notquite high enough attacks.
On the, or not a tax, but thetaxable amount of your social
security benefits.
So they upped it from 50 to 85%in 1993.
Victor Colella (09:35):
Yeah, and, and this is a question we actually
do get a decent amount still,which is our Social security
benefits taxable.
The way that it works is basedupon your other income.
Either zero, 50% or 85% istaxable.
That's still true today.
So 1993 was the last change totaxability rules.
I even think that the bracketshave remained the same, uh,
(09:57):
since then.
Yeah.
Laura Neal (09:58):
goes up pretty quickly
Victor Colella (10:00):
Yeah,
Laura Neal (10:01):
you don't have to make too much to get that full
85% taxed.
Victor Colella (10:07):
yeah.
And, and for example, the, the,the joint filing threshold for
85% is$44,000 today.
It was also$44,000 in 1993.
So in effect, not changing thosebrackets has meant that the
income threshold to be taxed at85% has gone down just because a
dollar's worth a lot more in1993 than it, than it is today.
(10:28):
So just there are some of thosethings that just haven't
changed, which is a way ofadjusting the math for the
system.
Laura Neal (10:34):
Yeah, that's a good
Victor Colella (10:35):
so now fast forward, we're in the, the new
millennium.
It's 2000.
What happened in 2000?
Laura Neal (10:42):
There was another, uh, another social security
bill.
Um, actually two, so there was asmall one, like right at the
turn of the century, um, calledthe.
Senior Citizens Freedom to WorkAct.
And so I think this came aboutas we saw more and more people
working later into their years.
(11:04):
So it used to be that if youchose to work past 65 or
whatever your full retirementage was, you could not claim you
could get your full retirementbenefits through Social
Security.
You got a reduced amount.
And afterwards they said.
No, you can get your fullretirement amount.
We're just gonna tax you on it.
(11:26):
So like we spoke of before.
Victor Colella (11:29):
Yeah.
Laura Neal (11:31):
There was a pretty big change.
Victor Colella (11:32):
Yeah.
And for clarity, that rule isstill in place where your
benefits can be reduced if youearn too much and you claim your
social security retirementbefore your full retirement age,
that's still exists.
If you're both, that's one ofthe reasons we say at least wait
until your full retirement age.
Ideally wait as long as you canbecause.
If you're still working, even,even sort of part-time or
(11:55):
consulting basis, you mayactually get a reduction in your
social security benefits, uh,until you get to full retirement
age.
So that's an important, animportant distinction.
Um, all right, fast forwardagain.
2015 is where we're at now.
What happened in 2015?
Laura Neal (12:12):
Well, so a lot of people would take advantage of
what we would call someloopholes in the system, and so
they would do what was commonlyreferred to as file and
Victor Colella (12:23):
Mm-hmm.
Laura Neal (12:24):
a restricted application.
So oftentimes, you know, if, ifone spouse has.
than twice the benefit of theother.
There's something called aspousal retirement benefit where
you can get at least half ofyour spouse's retirement.
And so, uh, one spouse wouldfile suspend their, uh, benefits
(12:46):
to accrue.
Larger benefits and then takeadvantage of the spouse getting
it.
And, and they finally figuredout that this wasn't good for
the system that was alreadystruggling.
And so they got rid of that.
Um, so just aiming to close someof those loopholes, especially
ones that were benefiting, um,wealthier retirees.
Victor Colella (13:08):
Yeah, I think about this as the, the, the good
old days of retirement socialsecurity planning, because as
advisors, and this is why itbenefited wealthier, uh,
wealthier folks more is that ifthey had somebody who knew how
the system worked, there wereways that you could game it, uh,
and within the law, right?
That's how the law was written.
But not everyone understoodthem.
(13:29):
And it was a time where youcould really, you, there were
some strategic moves that youcould make when filing.
There are still a few of theseleft, but like I sometimes say,
the goodies have all been takenaway from us.
Uh, it's a lot simpler than itused to be, which is a benefit
for everyone.
But some of those strategiesaren't there anymore.
Um, let, let's hit cost ofLiving adjustments briefly.
(13:51):
So, um, because that's the mostrecent changes.
Uh, well actually this happensalmost every year, but yeah.
Laura Neal (13:59):
Yeah.
we adjustments every year, butjust notably that, um, in 2022,
they had a 5.9% adjustment, and23 and 8.7% was.
The highest adjustment since2000, or, I'm sorry, 1981.
So, um, just, just a note thatthey, they did try to bump up
(14:23):
benefits to keep up withinflation that we were seeing at
the time.
Victor Colella (14:27):
Yeah.
Yeah.
Which can create, if wage growthisn't there, it can create a
problem where you're paying inless because wage growth lags
inflation.
That's some of what drove thesechanges back in the eighties.
So it's, it's something to keepyour eye on.
There's gonna have to be changesto make the math work.
'cause everyone likes to pointout in news stories, basically
(14:47):
every couple of years, uh, itgoes through all the major news.
Uh, networks, um, things aregonna have to change.
Uh, so why, why don't weactually shift?
So let's shift to how do weinterpret all of this history,
uh, for our clients' benefitwhen they come and ask us about
social security, I.
Laura Neal (15:07):
Yeah, so I think my biggest takeaway, and as we
were, you know, prepping forthis is that.
A lot of times the fear it whenthese news stories come out is,
am I gonna get a paycheck nextmonth, right?
Am I gonna get my check nextmonth?
Are they gonna cut my benefitsin half?
So I hope you have seen that aswe go through this history
(15:28):
lesson.
that they do is very forwardlooking and sometimes super
forward looking.
Right?
retroactive.
It's never saying, okay, you'vebeen getting$30,000 a month.
We're cutting your benefit inhalf.
So I think, to me, that was mybiggest takeaway.
What do you think Vic?
Victor Colella (15:49):
Yeah, always forward looking.
I mean, some of the taxabilityyou related things would've
changed what you got after tax,if you were making above a
certain amount.
But, um, incremental,retroactive, incremental, uh,
this has been called the thirdrail of politics.
Right, because there is a factthat has been true and is still
(16:11):
true today, is that the, thedemographic group that votes in
the highest frequency are thefolks who are receiving their
social security paycheck, theirsocial security retirement
benefits.
And that's why it is a favoritefootball to generate fear for
political gain.
Both sides do this, right?
It is a, it is a thing that'sbeen happening since it's
(16:33):
existed.
Um.
Tune out the, the, the noisearound that and, and look, use
history as a guide.
There's a reason that this hasbeen true throughout history.
Um, and there will be changes.
Um, without a doubt there willbe changes.
So, Laura, let's talk about howthis should impact your
planning.
So, so you're, you're thinkingabout social security.
(16:55):
When should you file, how shouldyou factor it in when you're
planning for the future?
Uh, you put some thought intothis.
So, so what, what are some ofthe impacts for financial
planning for folks?
Laura Neal (17:07):
I'd say first and foremost that um, you wanna plan
when to take your socialsecurity.
Thoughtfully with a financialadvisor in the context of your
overall financial plan.
We don't want anybody taking,making their social security
decisions around fear, right?
(17:28):
We don't want anybody taking itat 62 because they're afraid the
gonna go away, and then they'regiving up of that benefit.
Um.
Vic laughed at me when I toldhim this story, but I got a
recent issue of my A A RPmagazine, which is a
surprisingly good magazine, um,has, has people on the cover
(17:53):
where I'm like, I
Victor Colella (17:54):
Yeah.
Laura Neal (17:54):
you're my Um, but it was talking about and speaking,
you know, mostly to people whodon't work with advisors, but
about how much money people arelive leaving on the table by
not.
Waiting until age 70 to claimtheir benefits.
Victor Colella (18:14):
Yeah, and I'll say the most important
variables, as Laura was saying,in the context of your financial
plan, it's.
Family longevity matters a lot.
We talk about this a whole bunchwith clients who are thinking
when to file.
Basically there's, there'susually a break even somewhere
around your early eighties whereif you think you're likely to
live beyond that, the strategyof waiting as long as you can
makes sense.
(18:35):
It also, the other variable thatmatters a lot is what's the rest
of your cash flow situation looklike, right?
Do you need the money now?
Uh, do you have other sources topull from?
So that's a big factor too.
Um, there was one that we talkedabout that I wanna mention is.
So let's say you're many yearsfrom being of age to take your
social security benefits.
How should you factor it in?
(18:56):
Should you use the number onssa.gov and say, I'm probably
gonna get that adjusted forinflation?
Well, this is where we do thinkit makes sense to be a little
conservative.
We know based on the math thatthere will be changes.
So that doesn't mean say I'm notgonna get any social security,
that's probably not gonna be.
Correct.
But thinking that you're gonnaget the version of it that
(19:18):
exists today also wouldn't becorrect.
So you could use a lowerinflation rate, you could use
some percentage of socialsecurity.
There are lots of ways that wecan do this.
Um, but it, it is a reality thatthe numbers have to change, uh,
for the math to continue to workover the long term.
And we have no doubt that theywill, um, because of that whole
third rail thing.
(19:40):
Uh.
But, uh, yeah, it makes sense tobe conservative.
Does that make sense, Laura?
Laura Neal (19:46):
Yeah, absolutely.
Victor Colella (19:48):
Well, I think that's, uh, well, we had one
more thing.
Uh, this is, yeah.
Laura Neal (19:53):
to a conference and they gave me a good piece of
advice that I took this weekendand I wanna pass on.
So the social security websitechanged its log in, um,
credentials around March of thisyear.
And so there is a different waythat you have to log in.
So I recommend everybody go tossa.gov.
(20:18):
up your login credentials.
Print out not only yourstatement, but print out your
full earnings history that showsevery single year of what you
earn.
Print that out, put it in yoursafe where you keep your other
documents.
Just a little.
Victor Colella (20:33):
policy.
Yeah.
Yeah.
Perfect.
Well, thank you Laura.
This has been great.
I learned a few things in doingthe research here, and we hope
it's helpful for all, all ofyou, uh, potential social
security recipients in thefuture out there, um, or current
recipients.
So thanks a lot.
Thank you for listening toanother episode of Your Money in
(20:54):
20, the podcast by your friendshere at Woodward Financial
Advisors.
We hope you enjoyed it.
Now, if you'd like to continuethe conversation, you could find
us on theweb@woodwardadvisors.com, and as
a firm on both Facebook andLinkedIn, there's a link to
those pages at the bottom of ourwebsite.
You can also find us all asindividuals on both Twitter and
LinkedIn.
Now, we love receiving listenersuggested topics, so if you have
(21:16):
a topic you'd like to hear moreabout.
Please hit the Let's Talk linkat the top of our website and
submit a message with podcast inthe subject line.
Thanks again for listening andtalk to you next time.
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