The Surprising Truth About the Future of Social Security | Personal Finance

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Here are some scary headlines you may have run across that give the impression that Social Security is on its way to being a thing of the past:

  • “Social Security Is Projected to Be Insolvent a Year Earlier Than Previously Forecast” (The New York Times, 2021)
  • “Why Is Social Security Running Out of Money?” (Investopedia, 2022)
  • “Go-Broke Dates Pushed Back for Social Security, Medicare” (Fox Business, 2022)

They’re misleading, though — because the vital safety-net program is not disappearing any time soon. There is some trouble ahead, but it’s likely to be not as bad as you think.

Image source: Getty Images.

There’s already one big problem

While much of the media attention on Social Security focuses on its fiscal health, little is paid to how well it’s serving seniors. For example, its cost-of-living (COLA) increases haven’t sufficiently kept up with inflation. As my colleague Trevor Jennewine has noted, “Social Security benefits have increased 64% due to COLAs since 2000, but the expenses of a typical senior have grown more than twice as fast. As a result, Social Security has lost 40% of its buying power over that time period, according to The Senior Citizens League.”

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How does 80% sound?

But let’s get back to the solvency issue. Understand that Social Security works by taking in taxes from working people and using them to pay beneficiaries their due. The system worked fine for a long time, as there have been far more workers than beneficiaries. But over the past few decades, people have been living longer and retiring earlier.

Per the Social Security Administration (SSA), this is how the ratio of covered workers to beneficiaries has changed over time:

Year

Ratio of Covered Workers to Beneficiaries

1945

41.9

1955

8.6

1975

3.2

1985

3.3

1995

3.3

2005

3.3

2015

2.8

2020

2.7

Source: Social Security Administration.

You can see that things are not moving in an auspicious direction. We’re nearing the point at which not enough will be coming in to cover benefits needing to be sent out. According to the 2022 Social Security Trustees Report, the current Social Security surplus will be depleted by 2035. That doesn’t mean that the program will suddenly be “broke,” unable to pay any benefits. Rather, there will be enough to only pay beneficiaries most of what they’re due — 80%, in fact, according to the latest estimate. That’s certainly not good news, but it’s not 0%, either.

The good news

Despite this worrisome scenario, there is good news: The Social Security program can be strengthened if Congress chooses to do so. (Let your representatives in Washington know that you’d like them to!)

One fairly easy fix is to simply increase the tax rate that we pay for Social Security, which is 6.2% of our income up to $147,000 (for 2022), plus another 6.2% contributed by our employers. Everyone might pay a slightly higher rate, or that cap might be raised or eliminated so that higher earners get taxed more.

Another possibility is raising the full retirement age, at which we’re entitled to start collecting the full benefits we’re due, based on our earnings record. That’s currently 67, at most. Raising it would mean fewer benefits would end up being paid in total.

There are other possible fixes, as well. So don’t worry too much about Social Security shrinking or disappearing. Your future benefits may indeed be smaller, but there’s a very good chance that that won’t happen because it would upset many voters.

The average monthly Social Security retirement benefit check was recently about $1,671 — about $20,000 over the course of a year. If that doesn’t seem anywhere near what you were hoping for, learn about ways to increase your Social Security benefits. And in the meantime, be conservative, factoring Social Security into your retirement plans. Expect less money and hope for more.

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