The vast majority of Americans who retire from the work force rely heavily, if not completely on income from Social Security to support themselves and their spouses, which means it’s a program they simply could not live without. For over 20 years now, annual surveys conducted by national pollster Gallup have revealed that 80 to 90 percent of current retirees depend upon the payments they receive from Social Security to help pay for some or all of their expenses. What’s more, 76 to 88 percent of non-retirees expect they will have to lean on the program as a means of offsetting the cost of their retirement.
Making sure that the top retirement plan in America is healthy and stuffed to the gills with wealth that individuals will require to get by in their older years, should probably be listed somewhere near the top of the list of priorities for those in Congress, but things are actually getting worse. Kind of sounds like the rest of the issues facing America under the watch of President Joe Biden.
Check out more details on this from The Motley Fool’s latest article:
Current and future retired-worker beneficiaries are looking to elected officials to address Social Security’s shortcomings — and that begins in the White House with President Joe Biden and his top economic advisor, former Federal Reserve Chairperson Janet Yellen.
Every year since the first retired-worker benefit was mailed out in 1940, the Social Security Board of Trustees has released a report that examines the financial health of this top retirement program. In addition to detailing how revenue is collected and where each Social Security dollar ends up, this annual report factors in changes to fiscal and monetary policy, along with demographics shifts, to estimate the financial outlook for Social Security 10 years (the short term) and 75 years (the long term) following the release of a report.
Every Trustees Report since 1985 has cautioned that Social Security is facing a long-term funding shortfall. To be clear, this doesn’t mean the program is facing bankruptcy or insolvency. Rather, it means the existing payout schedule, including annual cost-of-living adjustments (COLAs), can’t be sustained if things continue on their current trajectory.
According to the 2023 Trustees Report, the Social Security program was looking at a $22.4 trillion — yes, “trillion” with a “t” — long-term funding deficiency. The Old-Age and Survivors Insurance Trust Fund, also known as OASI, which sends out monthly payments to over 50 million retired individuals and somewhere around 5.8 million survivor beneficiaries, is now going to end up exhausting funds by 2033. If these reserves are totally depleted, we could end up seeing massive cuts of up to 23 percent in order to prevent needing additional reductions through 2097.
The bulk of Social Security’s shortcomings can be traced to sustained demographic shifts. Some of these you know, such as the ongoing retirement of baby boomers and increased longevity since retired-worker payouts began in 1940. However, some of the demographic changes that are adversely impacting Social Security may not be as visible, such as:
A historically low U.S. birth rate.
A more-than-halving in net-legal migration into the U.S. since 1998.
Rising income inequality.
President Joe Biden’s plan, which he revealed while campaigning for president back during the 2020 presidential election, is based mostly on taxing the snot out of the rich in order to raise more money for the program.
“In 2024, all earned income (wages and salary, but not investment income) between $0.01 and $168,600 is subject to Social Security’s 12.4% payroll tax. Meanwhile, earned income above this figure is exempt. Biden’s plan would reinstate the payroll tax on earned income over $400,000, which would help raise immediate revenue for the program,” the Motley Fool said.
When Biden delivered his State of the Union address this year, he said, “Many of my Republican friends want to put Social Security on the chopping block. If anyone here tries to cut Social Security or Medicare, or raise the retirement age, I will stop them!”
The problem with that is that cost-cutting and revenue increases might be what’s needed to make repairs to Social Security.
Back in 2018, Yellen, along with four other writers, published an op-ed piece in The Washington Post that offered a way to fix things, in a realistic way, though, be warned, it’s a rough road to travel down.
There is room for additional spending reduction in these [entitlement] programs, but not to an extent large enough to solve the long-run debt problem. The Social Security program needs only modest reforms to restore its 75-year solvency, and these should include adjustments in both spending and revenue.
Contrary to what the president said in the SOTU speech, Yellen, on record, has stated cuts need to be part of the solution to strengthening the Social Security program.
“Keep in mind that ‘cutting Social Security’ doesn’t mean taking the proverbial scissors to retiree benefits. Reducing outlays would primarily be accomplished by gradually raising the full retirement age to as high as age 70 for future generations of retired workers. The ‘full retirement age‘ represents the point where you become eligible to receive 100% of your retirement benefit,” the report said. “If the full retirement age is gradually increased, future retirees will either have to wait longer to receive 100% of their benefit or accept a steeper reduction for claiming their payout earlier. Either way, the goal would be to reduce the amount of lifetime benefits paid by the program to workers.”
So, yeah, it’s going to suck to have to cut lifetime benefits, especially with how many folks rely on this program to get by every year. However, with the age of retirement being bumped up by two years, compared to the sizable 1 year increase of a person’s life expectancy, the proposal makes some sense.
To summarize, the best approach to fixing Social Security is a bipartisan one that takes both sides into consideration.
The point is that Social Security’s best chance of success is if core components from Republicans and Democrats are incorporated into one bill. This is what happened with the Social Security Amendments of 1983, and it’s likely what’s needed to ensure the financial health of this program for generations to come.