Is Social Security Going Away?
Is Social Security Going Away?
You've probably seen headlines claiming that "social security is running out of money." Leaving many investors worried about what might happen to their retirement income.
Yes, the Social Security Trust Fund is projected to be depleted by 2033-2034. But that's not the same as benefits disappearing. The reality is a bit more nuanced.
Social Security benefits are funded in two ways. Payroll taxes are the main source of funding and cover 80% of the benefits. The Trust Fund acts as a backup to cover shortfalls, currently making up about 20% of total benefits.
If nothing changes by 2033-2034, the Trust Fund will run out. At that point, benefits would continue, but they would be reduced by about 20-23%.
We've Been Here Before
This isn't the first time we've faced this. In 1983, a bipartisan group in Congress passed reforms that stabilized the system. That's when the full retirement age began to rise from 65 to 67.
Several similar proposals are now on the table: gradually increasing the retirement age again, raising or eliminating the cap on payroll taxes, slowing the rate of benefit growth (changing the inflation formula), and modestly increasing payroll tax rates.
Each of these addresses a portion of the shortfall. A thoughtful combination could close the gap especially if action is taken sooner rather than later.
This is not an unsolvable crisis, it is a policy challenge that needs to be solved.
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