Social Security

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According to the latest data, the Social Security trust funds are projected to run out of money in less than 20 years, unless Congress decides to make changes to the system. However, there are several potential changes that could be made, including raising the retirement age, reducing benefits, and increasing taxes. Or Congress could do nothing, but that doesn't necessarily mean Social Security checks will stop.

The point is that there are several things that could happen to Social Security in the next 30 years. We asked three of our contributors to offer their best educated predictions, and here's what they had to say.

Selena Maranjian: If you only read headlines for financial news, you might be worried about Social Security "running out of money" in the near future, leaving millions of retirees without the monthly checks on which they depend. That's not quite the scenario ahead of us. It's true that Social Security, since 2010, has been taking in less money than it has been paying out. That's not ideal, but it's largely a result of people living longer than they did back when Social Security was created. Over time, the ratio of workers to retirees has been falling, from 16.5 in 1950 to 3.2 in 1980, and 2.8 in 2013.

Social Security has reserves, though, which have been bolstering the system. But they won't last forever, and it's estimated that they will run dry around 2034. Don't hyperventilate now -- because that won't be the end of Social Security. There have been many proposed ways to strengthen Social Security, and if some of them are implemented, we may notice no changes at all in 30 years -- or Social Security might even be stronger and better.

A worse-case scenario, though, still isn't quite as bad as you might imagine. Even with no reserves, money will still be coming into the system through the payroll taxes that workers fork over each year. It's estimated that with them, Social Security will be able to pay retirees about three-quarters of what they're scheduled to receive. That would be a big blow, but 75% of your benefits is not 0%. Still, I'm rooting for strengthening Social Security, because it's a necessity, not a luxury, for most people, and the recipients have spent years paying into the system with the expectation of benefits down the line.

Todd Campbell: Because 59 million Americans rely on Social Security and a whopping 59% of current recipients view their Social Security payments as a major source of income, it's unlikely that Social Security will be scrapped or that payouts will be cut. Moreover, since the average retired workers Social Security payment is just a shade north of $1,300 monthly, there's not a lot of fat to cut from payments anyway.

Instead, legislators will probably revamp the Social Security tax to boost the income side of Social Security's ledger.

Currently, employees and employers pay a combined 12.4% of wages into Social Security. I expect that rate to climb, but a bigger impact could be made by lifting the income limit that the Social Security tax applies to. Currently, income above $118,500 isn't taxed, and I think that's bound to change; especially as more voting baby boomers begin collecting and counting on Social Security.

Matt Frankel: There are several ways Congress could potentially fix the Social Security shortfall, including raising taxes, increasing the retirement age, lowering benefits, and more. In my opinion, the most likely to happen is a combination of these. Not only is any one "fix" likely to be big enough to take care of the problem, but by combining several modifications the system can be made solvent for the foreseeable future.

For example, gradually increasing Social Security taxes to 7.2% of wages from the current 6.2% rate would make up for 52% of the projected shortfall, and is actually supported by 83% of Americans. Increasing the amount of income subject to SS taxes to $230,000 is also a popular idea, and would take care of another 29%. And, changing the index used to calculate cost of living increases from CPI to "chained CPI" would eliminate 25% of the current problem. In other words, the combination of these three fixes would do more than enough to make the system solvent and all are popular ideas.

On the other hand, the majority of the population is opposed to increasing the retirement age or to across-the-board benefit cuts, so these are unlikely to gain any political traction.

To sum it up, there is no one right way to fix Social Security, but the system is not beyond repair. As Selena discussed, the current Social Security taxes will still support the majority of benefits, even after the trust fund is depleted. All we need are a few modifications to bridge the gap.

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