Is Social Security Running Out? 2023 Edition
One of the most common questions I get when I come to the Social Security section of a new client's retirement plan is "Will there be anything left when I retire?" It's a fair question given the solvency issues of the Social Security trust fund.
Like most issues, the media loves to discuss the problem and rarely the solution.
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 2023 report, and below is my summary.
Summary of 2023 Report
Current Costs and Income - In 2022, the total cost of the program was just over $1.24 trillion dollars and there were $1.22 trillion dollars in income so it came fairly close to breaking even, dipping into reserves slightly.
From 2022 to 2034 – The reserves are currently $2.83 trillion dollars, roughly 2.5 years of expenses. Total costs are projected to be more than income every year until the reserves are depleted. By 2033, they are projected to be depleted – one year earlier than reported in 2022 (2034) and the same as what was reported in 2021 (2033).
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 20-25%. However, there are several possible solutions to prevent this that I believe politicians will make, unfortunately probably later rather than sooner.
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 15.8%. This could mean both the employee and employer pay an additional 1.7% 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.