#120 - Social Security Headlines: What They Really Mean for Your Retirement

Eric Blake: Welcome to another episode of the Simply Retirement podcast, where we want to educate and empower women to live your retirement on your terms. I'm your host, Eric Blake, and I would not be the man I am today without the women in my life. On today's episode, I am going fully solo. First time in the three years that I've been doing this podcast, over 100 episodes. Wendy is sitting on a beach right about now, and as I've shared, Wendy is often the one that keeps me from going fully nerd as we do on a number of topics, including what I'm going to be sharing with you today.

Today, we have a listener question that will lead us to a couple of headlines that you may have heard or seen about the future of Social Security. And if you have a question you'd like to have answered on a future episode, you can visit simplyretirementpodcast.com/askeric. But if you're approaching retirement, or even if you're already receiving Social Security benefits, the chances are you've seen plenty of headlines lately. You might have heard about Social Security being tax-free now. That was big during the campaign and following the approval of this new tax law that we have in place. But there are always these headlines about the future of Social Security and questions about what Congress is going to do. Are they going to do anything to make the changes that the trust fund needs, that the Social Security system needs, before it's projected to run short?

And it's enough, of course, to make you wonder, "Should I be worried? Do I need to change my retirement plan? Can I still count on Social Security?" And one thing I've learned over the years is these headlines often leave out a lot of details. Take that recent tax law, for example. Again, you may have heard that Social Security is going to be tax-free. Of course, that's not exactly what happened. The law didn't change how Social Security benefits are taxed. Instead, what happened is it created a larger deduction for taxpayers over the age of 65, and as a result, fewer retirees may actually pay federal income tax on their Social Security benefits. So that's the truth about what really happened, but that's also where the confusion comes in.

And that's an important distinction, because understanding why something changed is just as important as knowing that something changed. Most importantly, how does it impact me or you as the retiree? The same is true when we hear headlines about the Social Security Trustees Report or these different proposals that are going through Congress. Because for many women, Social Security isn't just another monthly check. It is one of the largest sources, if not the largest source, of guaranteed income that you'll receive during retirement. And that's why these headlines matter so much. Not because every headline requires you to do something, but because understanding what's actually happening allows you to make better retirement decisions instead of reacting to the latest news.

We're going to start with a listener question that opens the door to one of the biggest retirement planning decisions you're ever going to make, but also very much ties into some of these recent headlines. So once we go through the listener question, then we're going to look at the latest Social Security Trustees Report and what it's telling us. Finally, we'll discuss a proposal that is in Congress right now called the PROMISE Act, and why you may be hearing more about it over the next several months.

So let's start with our listener question. Our listener asks, "I'm about to start receiving Social Security. I've waited until age 70. I'm still working full time. I'd like to have income tax withheld from each check so that I'm not surprised at the end of the year. I understand that 85% will be taxed, but I can't figure out what percentage should be withheld." Now, the first thing I'll say is congratulations on this milestone, and I'll absolutely answer your tax question, because it's an important one.

But first, I want to point out something else that our listener shared that may have an even bigger impact on her retirement. And that is the fact that she waited until age 70 to begin her Social Security benefit. For many women, that's a decision that's really worth carefully evaluating. Not because age 70 is automatically the right answer for everybody, but because delaying Social Security benefits generally increases your monthly benefit for the rest of your life, okay?

And we know that women, on average, live longer than men. Many, if not the majority, will spend some part of retirement on their own, whether they're already single by choice, or it could be divorce, it could be becoming a widow. And it can make a larger source of guaranteed income especially valuable if you find yourself in those circumstances. Now, the larger benefit also becomes the starting point for your future cost of living adjustments. And for married couples, delaying may also increase the survivor benefit for a surviving spouse and what they're going to receive later as well.

So of course, waiting until age 70 isn't right for everyone. You have your health to think about, you have your income needs, what other retirement assets you have, and just generally your overall retirement plan. They all play an important role when you're making these decisions. Now, again, she mentioned that she's also working full-time, and that's great news, because she's reached 70. That also means, because she is over her full retirement age, the Social Security earnings test no longer applies, so she doesn't have to worry about losing benefits because she's continuing to work.

So now let's get to the tax question itself. I want to make one clarification, and that is many people hear that 85% of Social Security is taxable, and they could actually assume that they're going to pay 85% tax. So fortunately, that's not what that means. What it simply means is that up to 85% of your Social Security benefit may be included as taxable income, depending on your overall income. So whether your Social Security benefits are going to be taxable depends on a formula called provisional income, and this is going to include your other taxable income sources like employment, maybe IRA distributions. It also does include things like tax-exempt municipal bond interest, and then half of your Social Security benefit. So that's how your provisional income is calculated.

So as for actual tax withholding, Social Security gives you five choices. As little as zero, you don't have to have any taxes withheld. So you can have 0%, 7%, 10%, 12%, and 22%, right? And the right percentage, of course, depends on your overall tax picture, including your wages, including what you're earning, including IRA withdrawals, investment income, filing status, whether you are filing single or married, and any other deduction that you might have. So while there's not that one percentage that's right for everyone, I do think it's smart that you're thinking about this now instead of waiting until tax time.

And then lastly, it's important to remember that this is a percentage of your benefit. It doesn't work like our tax rates. If somebody asks you what tax bracket you're in and you say 22%, that's really only talking about the last dollar of income you have being taxed at 22%. But in our example, if you choose 22%, that means 22% of your benefit will be withheld for federal taxes. And that's why, to me, the tax projections can be really important, especially if you are still working, as is the case for our listener here, or maybe you're already taking IRA distributions.

And then I would like to share that if you'd like a much deeper explanation of how Social Security benefits are taxed, I would encourage you to go back and listen to episode 54, How Social Security Gets Taxed and the things that you want to know. And then I'm also going to include a really helpful resource. This is our 2026 Social Security quick reference guide. We'll share that in our show notes.

And then, of course, the listener question started with taxes, but I think it also reminds us of something bigger. And that is many people spend years deciding when to claim Social Security because they expect it to be one of the most important income sources in retirement. And so naturally, once you've made that decision, that brings us to the next question, and it is, "Can I count on Social Security throughout my retirement years?" And that gets us to what is known as the Social Security Trustees Report.

Hi, everyone, it's Eric. Hope you're enjoying today's episode. I want to take just a quick moment to share a resource I think you'll find really valuable. If you've ever asked yourself, "How much is my Social Security reduced if I file early?" Or, "Am I eligible for benefits as a spouse, surviving spouse, or even after divorce?" You're not alone. That's why we created our ultimate guide to women's Social Security success. It includes six of our most popular Social Security guides and checklists for women. Inside, you'll find a 2026 quick reference guide with key Social Security amounts and limits to be aware of, along with five additional guides and checklists to help you make more informed decisions about eligibility and filing strategies. You can download it for free at womenssocialsecurityguide.com. Keep it handy wherever you may be in the decision-making process. Now back to the episode.

So every year, typically in June, the Social Security trustees report gets released, and basically it evaluates the financial health of the Social Security program. Okay? It's like an annual financial checkup, and this is when you hear all the talk about 2032 and 2033 or 2034, whatever it might be at the time. That's where that year is coming from that says that's when people think the Social Security system is going to run dry. But in reality, the report itself is simply, again, a financial checkup. Its purpose isn't to predict what Congress is going to do. The purpose is to answer one very simple question, and that is, "If nothing changes, what does the future of Social Security look like?"

And I think that phrase is important. If nothing changes as a result of this report, the trustees aren't trying to predict the future. They're showing us what could happen if Congress leaves today's laws exactly as they are. Okay? So now what did the 2026 report tell us? It tells us the Retirement Trust Fund is projected to have enough reserves to pay the full scheduled retirement benefits through late 2032. Okay? And then after that, Social Security taxes will continue to be collected, and benefits would not simply disappear. Instead, what happens is current revenue in 2032 would be expected to cover about 78% of the scheduled retirement benefits.

And I think that's important to understand. Social Security is not going to zero. That's not what's going to happen. But when the Retirement and Disability Trust Funds were looked at together, full scheduled benefits are projected through 2034 actually. And after that, ongoing revenue would be expected to cover about 83% of scheduled benefits. But back to what I just said, that doesn't mean Social Security benefits are going to zero. They simply are going to be reduced if nothing happens.

So what happens if Congress changes nothing? Again, it's a projection, not a prediction. Historically, Congress has made changes to the Social Security system over the years. The biggest change happened back in 1980, and the most recent big change happened in 1983, where we were seeing a lot of the same issues. That's when the full retirement age got changed to 67, which for many of us, if you're born in 1960 or later, that's what your full retirement age is. Payroll taxes have changed. The taxation of Social Security benefits has changed to some extent. The question isn't whether Congress can make changes. The question is what those changes might look like, and more importantly, when are they actually going to happen, okay?

And for me, that's always the biggest takeaway from this report when it's released each year. Not that benefits are about to disappear, and not that we know exactly what's going to happen. Instead, I look at it as simply a reminder that Social Security continues to be an important conversation for lawmakers because it is such an important part of retirement for so many Americans, okay? And for many women, Social Security is one of the largest guaranteed lifetime income sources that they're going to have, and that's just the reality of the situation. But that's why these reports matter. Not because they tell us the future, but because they remind us why it's important to build a retirement plan that has flexible spending enough to adapt when these rules eventually do change, okay?

And that brings us to another topic that many people have been hearing lately, and again, these headlines that you hear about or you may read about. But if Congress knows this challenge exists, what are they actually doing about it? One proposal that has received a lot of attention recently is something called the PROMISE Act. Okay? Some of the proposals that are out there have generated a lot of headlines. And whenever Social Security is involved, it's understandable that people become concerned.

So what is this? And that's what I want to bring here, some clarity about this. So the easiest way to think about the PROMISE Act is this: it isn't a bill that changes your Social Security benefit today. Instead, it is simply a proposal that would change how Congress responds if Social Security gets closer to the funding challenges discussed in that trustees report. Okay? So under current law, if Congress took no action before the trust funds reached the projected shortfall, benefits would automatically be reduced to the level that ongoing payroll tax revenue could support. And the PROMISE Act proposes a different approach. So rather than allowing that automatic reduction to occur, it would establish a process that requires Congress to address the issue before reaching that point.

And as we all know, Congress is well known for waiting until the very last minute to pass any type of important legislation. So I just want to be clear, this proposal is not law, and it very well could change. It might never become a law, and even if it did, it wouldn't automatically change your benefits. It would simply establish a process for Congress to consider possible solutions.

Now, one reason you may have heard about the PROMISE Act is because organizations like AARP have expressed some concerns about that process. And their concern isn't necessarily about solving Social Security's long-term funding challenge, because actually most people agree that eventually something's going to have to be done. Their concern is how those decisions would be made, and whether the proposed process would give Congress enough opportunity to fully debate and consider changes before voting. Okay? Reasonable people can disagree about whether this proposal is the right approach or not. And again, my goal isn't to tell you what to think, or whether you should support or oppose it. My goal is simply to help you understand why it's making headlines right now.

And personally, I think the biggest takeaway isn't whether this particular bill becomes law. It's that lawmakers are at least discussing potential solutions years before the projected funding deadlines hit us, right? And at least to me, that's somewhat encouraging. Not because we know what Congress will ultimately do, because we don't, but because the conversation is happening now instead of waiting until the last possible moment.

So for anyone who's approaching retirement, or if you're already receiving Social Security, that's really the message I would focus on. Because you want to stay informed, you want to understand what's being discussed, but don't make major decisions based on proposed legislation or news headlines alone. Now with that said, if you want to build a plan that's more conservatively focused, you could build it around the assumption of your benefit getting reduced 20% to 25%, right? And then build your other income around that. That is one approach that, for some people, helps them feel more confident about what their plan looks like. Otherwise, you want to wait until changes become law and then decide whether your retirement plan needs to be adjusted. Because I think a good retirement plan isn't built around predictions by any means. It's built to adapt to life, and sometimes the laws are going to change.

So as we wrap up today, I hope one thing stands out. Social Security headlines are almost always designed to grab your attention, but they don't always tell the whole story. Also, there's not a one-size-fits-all solution for Social Security decisions. So what should you do? Make educated decisions based on what's best for you, not your friend, not your neighbor, not your coworker. Stay informed, ask questions, and remember that retirement planning has never been about predicting the future. It's about preparing for it.

So if today's episode raised some questions about your own Social Security strategy, or how it fits into your overall retirement plan, that's exactly the kind of conversations we enjoy having. You can download our 2026 Social Security quick reference guide, or ask your own Social Security question or retirement planning questions, by using the links in today's show notes or by visiting simplyretirementpodcast.com. Thank you for joining me for another episode of the Simply Retirement podcast. Be sure to follow so you don't miss future episodes. Until next time, please remember, retirement is not the end of the road. It's the start of a new journey.

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