Is Social Security Running Out? 2022 Edition
Will there be anything left when I retire? Will my benefits get cut? These are some of the most frequent questions I get when it comes to someone’s retirement plan. And the media loves to talk about the Social Security problems.
Fortunately, there is data to answer these questions. Every year the Board of Trustees for Social Security reviews the financial status of the trust fund that pays out Social Security benefits. Recently, the board released its 2022 report, and below is my summary.
Summary of 2022 Report
Current Costs and Income - In 2021, the total cost of the program was just over $1.14 trillion dollars and there were $1.09 trillion dollars in income. For every dollar paid out in benefits, 95 cents came from income through taxes and interest earned in reserves. The other 5 cents came from withdrawing reserves.
From 2022 to 2034 – The reserves are currently $2.85 trillion dollars, roughly 3 years of expenses. Total costs are projected to be more than income every year until the reserves are depleted. By 2034, they are projected to be depleted – this is actually an improvement of 1 year from the 2021 report, where they projected 2033 to be the depletion date.
It is important to note if no changes are made, and reserves are depleted, it does not mean that Social Security will stop. It would mean that benefits would be reduced by an estimated 25%. However, there are several possible solutions to prevent this that I believe politicians will make.
Solutions – The board provided many different solutions, 3 of which I see as reasonable changes to the current system.
Increase payroll taxes by 12.4% to 15.6%. This could mean both the employee and employer pay an additional 1.6% into Social Security.
Raise the full retirement age from 67 in incremental steps all the way up to age 70. This seems to make sense as projected life expectancy is getting longer for younger generations.
A combination of the two listed above.
I do not want these solutions to downplay how serious the issue is. Action should be taken, preferably sooner rather than later, to protect current and future generations.
Happy Planning,
Alex
This blog post is not advice. Please read disclaimers.