Is Social Security Running Out?
Will there be anything left when I retire? Will my benefit 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 2020 report, and below is my summary.
Summary of 2020 Report
Current Costs and Income - In 2020, the total cost of the program was just over $1.1 trillion dollars and there was just over $1.1 trillion dollars in income. We broke even again – similar to last year.
From 2022 to 2035 – Starting in 2022, it is projected that costs will be slightly more than income and they will need to dip into their reserves. The reserves are almost $3 trillion dollars, roughly 3 years of expenses. By 2033, they are projected to be depleted.
It’s important to note that 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 a cut in benefits that I believe politicians will make (likely at the last possible second).
Solutions – The board provided many different solutions, 3 of which I see as reasonable changes to the current system.
Increase payroll taxes from 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.
Thank you for reading,
Alex
This blog post is not advice. Please read disclaimers.