The future of Social Security is a hot topic for both citizens and elected officials. As a program that over 64 million Americans currently benefit from, it’s a necessary lifeline for many. However, an unprecedented strain is testing its sustainability.
Because more beneficiaries are tapping the system than ever before, there is a pervasive fear that Social Security will run out of money within the next couple decades. But what is the likelihood of that actually happening?
Will Social Security be Gone When I Retire?
The short answer is: no, it will not be gone. No matter when you retire, even if it’s 40 years from now, the program will still be around. It will, however, likely look different than it does today.
Currently we pay into the program with our payroll taxes (often called FICA taxes, which cover funding for other programs, as well). That portion is distributed into what’s called the Social Security trust fund.
The media likes to cite sometime around the year 2035 (estimates vary from 2027 to 2041) as the end of a viable fund. Many are assuming that when it runs out the Social Security program itself will cease to exist. This isn’t the likely fallout, however.
The program, as it stands, uses money from today’s workers to fund the retirement programs of those who have already retired. This works when the number of contributing laborers exceeds the number of benefiting retirees.
Average Social Security Payout Over Time | FindTheData
This is why the value of that trust fund is depleting. Though it will take time to recover from the baby boomer generation, workers will continually contribute to the fund, ensuring its existence.
Without any changes to the system, it will still be able to fund approximately 78% of what is promised today, according to the Social Security Administration. So if you’re estimated to receive $25,000 per year when you retire (in today’s dollars), without reform you will still receive $19,500. A more likely scenario is that there will be reform to the system to offset that 22% margin.
Potential Social Security Program Reforms
There are a number of things that can be done to make the Social Security system robust. Most likely, when politicians eventually take action, a number of these reforms will go into effect:
- Raise the payroll tax rate: We currently pay 12.4% of our income in payroll taxes. If you are a W-2 employee, your employer pays half of that for you.
- Increase the cap on earnings: Currently you only pay payroll taxes on the first $118,500 that you earn. Increasing this is a simple and effective adjustment.
- Raise the retirement age: Currently the full retirement age is between 65 and 67 years old (depending on when you were born). Adjust that by just a couple years could greatly affect how long the fund will last, while also accounting for increased longevity.
- Change the cost-of-living adjustment: Those collecting benefits now often see their benefits increase faster than the cost of living.
- Cut benefit estimates: As stated above, an unchanged formula will result in 78% of benefits paid out if changes aren’t made.
Any one of these reforms would result in a better scenario, but none of them would eliminate the problem completely, even if put into effect today. A sweeping reform of the entire system needs to happen. By implementing small changes in all areas, the whole program would be healthier.
What Can You Do?
Everyone who’s paying into the system has a vested interest in the program’s survival. This is why a lack of urgency, and personal agency, over its future is frustrating for many.
You can write letters to your representatives and encourage them to take action. And if enough people do, something might happen. A better bet, though, is to take care of yourself.
Start an IRA if you don’t have one and take advantage of employer-sponsored 401(k) plans. It can seem like a low priority if retirement is decades off. But the earlier you start, the easier it is to reach your retirement saving goals.
Social Security benefits were never designed to provide for your entire retirement, which is why those paying into the system should supplement that income with their own savings.