The Future of Social Security

One of the most common questions I get on the topic of Social Security in 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 2024 report, and below is my summary.

Summary of 2024 Report

Current Costs and Income - In 2023, the cost of the program was just over $1.39 trillion dollars and there was $1.35 trillion dollars in income so it came fairly close to breaking even, dipping into reserves slightly.

From 2023 to 2034 – The reserves are currently $2.79 trillion dollars, a 1.4% decrease from the prior year. Total costs are projected to be more than income every year until the reserves are depleted. By 2035, they are projected to be depleted – an improvement of one year from what was reported last year.

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, three of which I see as reasonable changes to the current system.

  1. Increase payroll taxes by 12.4% to 15.7%. This could mean both the employee and employer pay an additional 1.65% into Social Security.

  2. Raise the full retirement age from 67 in incremental steps up to age 70 for younger workers. This makes sense as projected life expectancy is getting longer for younger generations.

  3. 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.

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