Well, if you’re one of the unlucky folks that is depending on Social Security to help you stay financially afloat during your retirement years, I have some very dire news for you. It seems this program is currently on life support and only has ten years left to live. We all knew the end was coming, but alas, it’s still a devastating blow, especially to the bank accounts of the millions of people who will likely end up high and dry when they need the money the most.
According to The Motley Fool, a third of adults who are 65 years old or over are reliant upon drawing social security to provide half of their retirement income. Even individuals who have some personal savings, things will be a whole lot tighter in the wallet if those checks don’t keep coming in the mail.
And while the program isn’t going the way of the dinosaurs in the near future, it’s currently smack dab in the middle of a funding crisis of ginormous proportions. If something isn’t done to fix things soon, things are headed in a very bad direction.
The latest Social Security Trustees Report, published last year, shows that the combined Social Security trust funds are expected to be depleted in 2034. These are a key source of funding for the program, alongside the Social Security payroll taxes workers pay and the benefit taxes an increasing number of seniors pay on their checks.
There are two Social Security trust funds: The Old-Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund. As you can probably tell from their names, the OASI fund pays benefits to retired and deceased workers and qualifying family members. The DI fund pays checks for disabled workers and their families.
The DI trust fund is not expected to be depleted during the 75-year period the report looked at — 2023 to 2097. But the OASI trust fund is projected to be depleted in 2033. This would result in benefit cuts. Congress has authorized the transfer of funds between the OASI and DI in the past, and it could do it here. But that would only buy Social Security recipients one more year.
Starting in a decade — that’s 2034 — the Social Security Administration will need to take the knife to benefits by a massive 20 percent for all those who are receiving them. Checks would then start to decrease by another 6 percent between 2034 and 2097. A whole lot of seniors who are counting on these benefits to help them take care of essential costs of living are going to be in deep trouble.
Thankfully, as the Motley Fool points out, the situation above is not one that’s very likely to unfold. The federal government is well aware of the funding crisis and folks in Congress have already started to toss out some ideas for how to solve the problem. There hasn’t been any major decisions yet, but there are some good ideas being floated around.
- Raising the Social Security payroll tax rate (currently 12.4% split equally between employee and employer)
- Raising the ceiling on income subject to Social Security payroll tax ($168,600 in 2024) or eliminating that ceiling entirely
- Raising the full retirement age (FRA), which is when workers are eligible for their full benefits based on their work history
- Reducing cost-of-living adjustments (COLAs) that help Social Security keep pace with inflation
Perhaps part of the reason there’s no clear solution yet is that many of the proposed options could wind up hurting workers, seniors, or both. Higher Social Security taxes could make it more difficult for workers to save for retirement, while reducing COLAs or increasing the FRA would result in smaller benefits for seniors.
In the meantime, it’s a good idea to start taking matters into your own hands and focus on the parts of your retirement plan you can control. Increase the amount of money you set aside for your 401(k) if you can. If you don’t have that kind of plan available to you, maybe look into an IRA or health savings account as a means of storing up cash.
You can also delay drawing Social Security and will enable you to have additional time to work and save for your retirement funding without having to rely on your Social Security payments.