Episode 233: Should You Worry About Social Security Running Out?

In Part 2 of this Live listener Q&A episode, Wade Pfau and Alex Murguia tackle several retirement planning topics, including Social Security claiming strategies for spouses with age differences, how younger workers should think about Social Security’s long-term solvency, whether to assume future benefit cuts in retirement projections, the impact of the “widow’s penalty” on tax planning and Roth conversions, evaluating an older variable annuity with high fees, tax considerations when selling investments in a taxable account, and how to think about maintaining portfolio discipline during retirement. Throughout the discussion, they emphasize balancing planning conservatism with practicality, avoiding unnecessary forecasting, and making decisions that support long-term retirement goals rather than reacting to headlines or uncertainty.

Takeaways

• When spouses have similar Social Security benefits, but one spouse is significantly older, the older spouse often has the strongest case for delaying benefits until age 70 because that higher benefit is more likely to become the survivor benefit.
• Younger workers may not need to heavily discount future Social Security estimates because projected wage growth could offset a significant portion of any future benefit reductions.
• For retirees already near claiming age, assuming a 25% reduction in future Social Security benefits can be a reasonably conservative planning assumption.
• The eventual Social Security reform package is unlikely to rely solely on benefit cuts and will more likely include a combination of tax increases and benefit adjustments.
• The “widow’s penalty” can significantly increase taxes for a surviving spouse because income often remains similar while tax brackets and Medicare thresholds become less favorable.
• Potential future tax increases and the widow’s penalty are both compelling reasons to consider Roth conversions even when current projections suggest little immediate tax benefit.
• High-fee variable annuities should be evaluated carefully, especially to determine whether valuable income guarantees justify the ongoing costs.
• If guaranteed income sources such as pensions and Social Security already cover essential expenses, a variable annuity can potentially serve as a bridge strategy to delay Social Security benefits.
• When selling investments from a taxable account, maintaining the portfolio’s target asset allocation is generally more important than trying to predict which investments will perform best or worst next.
• Tax-efficient selling decisions often come down to managing capital gains by choosing whether to realize gains from low-basis or high-basis shares depending on the investor’s broader tax situation.

Chapters

00:00 Social Security Strategies for Couples
06:28 Concerns About Social Security Reliability
10:16 Planning for Future Social Security Benefits
13:20 Roth Conversions and Tax Planning
18:18 Evaluating Variable Annuities
22:24 Taxable Account Management Strategies
25:05 Maintaining Asset Allocation Discipline
27:53 Tax Considerations in Asset Sales

Links

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This episode is sponsored by McLean Asset Management. Visit https://www.mcleanam.com/retirement-income-planning-llm/ to download McLean’s free eBook, “Retirement Income Planning”