Is Social Security running out of money?

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On June 1, the US Social Security Administration announced that its trust funds could pay out all Social Security funds through 2035, a year later than originally planned.

After that date, the SSA says payments will likely be reduced to about 80% if Congress does not step in and provide financial assistance to the program, according to the Board of Administrations.

In addition, The Old Age and Survivors Insurance Trust Fund, which finances retirement and survivors’ benefits, will run out of funds by 2034. After that date, 77% of planned benefits will be paid to American retirees.

The SSA’s Disability Insurance Trust Fund saw good news when trustees noted that the program, which pays disability benefits to qualified Americans, is now able to pay full benefits beyond 2057, the date at which the program administrators had estimated that the funds would be exhausted.

Currently, the combined asset reserves of the combined OASI and AI trust funds stand at $2.852 billion, down from $56 billion, with serious funding problems on the horizon.

Total annual program cost is expected to exceed total annual revenue in 2022 and remain higher throughout the 75-year projection period. Total cost started to exceed total revenue in 2021,” the SSA said in a June 2 statement. “The cost of Social Security has exceeded its non-interest income since 2010.”

“The year that the combined trust fund reserves are projected to run out, if Congress does not act sooner, is 2035 – one year later than last year’s projection,” the SSA added. “At that time, there would be enough income to pay 80% of the planned benefits.”

Red flags and risks

Financial experts say the SSA is doing a good job of clarifying the realities of program funding, but they see potential risk down the road.

“While the SSA announcement is welcome news, it’s important to remember that the long-term future of Social Security isn’t guaranteed,” said Michael Ryan, financial advisor and founder of the site. Financial Education MichaelRyanMoney.com.

“The program faces a number of challenges, including the retirement of the baby boomer generation, longer life expectancies and low birth rates. If these challenges are not addressed, the program could face insolvency in the future.

One of the biggest factors determining the longevity of Social Security benefits is the health of the economy, according to Ryan.

“If the economy is strong, there will be more revenue in the Social Security Trust Fund, which can support payments for a longer period,” he said. “However, if the economy weakens, these revenues will decline, putting pressure on the trust fund.”

Another factor that can impact the longevity of Social Security benefits is demographics. “As the baby boomer generation begins to retire, there will be more people drawing on the trust fund,” Ryan noted. “This increased demand can strain the system, leading to lower payouts or even complete depletion of the trust fund.”

Action Steps for Congress

Many Americans don’t fully understand what the SSA means when it says 2034 is the estimated final year of 100% program funding installments.

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“Some think that all Social Security benefits should automatically decline on this date and that there is no solution to the problem,” said Doug Carey, chartered financial analyst and president of WealthTrace, a planning software company. financial. ” But this is not true. Congress can always shore up the fund by raising taxes or raising the age at which benefits begin. Although we probably won’t do anything in the short term, they will have to solve this problem as we approach 2034.”

In the meantime, Congress can take a few steps to alleviate Social Security payment shortfalls. Those three steps are at the top of that list, Carey said.

1. Increase the amount of taxable wage income for social security. “Currently, the payroll limit for social security contributions on wages, which is 12.4% split between employer and employee, is $147,000,” Carey said.

2. Raise taxes for Social Security by 12.4%.

3. Change the way Social Security funds are invested. “Right now they’re 100% invested in US Treasuries and earning less than 2% a year, which is below inflation and means the real rate of return is negative,” Carey added.

What you can do to prepare

While the ball is in Congress’s court on Social Security funding, individual recipients can take their own action steps to maximize their Social Security income down the road.

“One of the most important things is to start planning early,” Ryan said. “It’s never too early to start thinking about retirement and how you will generate income during this time.

Be sure to contribute to a retirement account such as a 401k or IRA to create a solid retirement savings platform outside of Social Security. “The sooner you start saving, the more time your money has to grow,” Ryan noted. “Employers often offer matching contributions, so it’s important to take advantage of this if possible.”

Another path to financial security in retirement is to play your “late” card.

“If you think Congress will actually stop the Social Security system from cutting benefits, then delaying taking benefits until age 70 is the best strategy for many people,” Carey said. “There is a life expectancy that reaches the break-even point where it makes sense to delay taking Social Security.”

This age is 80 for most people. Therefore, if you plan to live past 80, it might be a good idea to delay taking Social Security. “That break-even point occurs because those who delay until age 70 receive a 24% higher payout,” Carey added.

Also, many couples may not be aware that their spouse can receive half of their benefits at full retirement age.

“For example, if one spouse worked and the other didn’t work much or at all, the difference in Social Security benefits earned can be huge,” Carey said. “Let’s say one spouse’s benefits are $36,000 a year and the other’s are only $10,000. The spouse with the $10,000 annual benefit should not claim their own benefit. He or she would have to claim half of the spousal benefit, which would be $18,000 per year.

It’s a good idea to run these scenarios as part of a comprehensive retirement plan to see if delaying makes sense.

“Spreadsheets and most free Social Security calculators aren’t enough because they don’t take into account all of the complex, interacting factors that go into such an important decision,” Carey said.

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