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More than 60 million Americans count on a Social Security check each month, and for more than you'd imagine, it's the primary source of their income. But the program on which seniors have come to heavily rely will soon face a day of reckoning.

According to the Social Security Board of Trustees 2016 report, the program is on track to completely exhaust its more than $2.8 trillion in spare cash by 2034. This expected budgetary shortfall in Social Security is no surprise, either. It's been well-known for more than a decade that the retirement of baby boomers would weigh on the worker-to-beneficiary ratio. The problem is also being compounded by life expectancies that have risen by nine years over the past five decades. The architects of Social Security in the mid-1930s simply didn't anticipate such a large outflow of workers from the labor force and the dramatic and steady increase in life expectancies.

Should Congress choose to do nothing and let Social Security run its course, the program will run out of excess cash by 2034, at which time it would essentially become a budget-neutral program. Per the Trustees report, beneficiaries would be facing an across-the-board cut of up to 21%. Given how many seniors rely on Social Security as a major income source, this is a worrisome outlook.

Congressional inaction is the big problem here

There's little denying that demographics are playing a role here. There simply aren't enough new workers or enough payroll tax revenue being generated by new workers to counteract the benefit needs of baby boomers leaving the workforce. But baby boomers aren't to blame for Social Security's woes. Congress is.

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Over the past 34 years, there have essentially been no substantive changes to Social Security. Some of the very few exceptions include adjusting the wage-indexing formula for the payroll earnings tax cap in 1989 and, in 1993 under the Clinton administration, implementing a new threshold (more than $32,000 for individuals and over $44,000 for joint filers) by which Social Security recipients could be taxed on 85% of their benefits. Pretty much every other aspect of Social Security has been collecting dust for more than three decades.

For example, the aforementioned tax thresholds that dictate which beneficiaries are taxed haven't been adjusted since 1983. When passed, the initial thresholds of more than $25,000 for individuals and over $32,000 for joint filers were only expected to impact roughly 10% of households. In 2015, according to The Senior Citizens League, 56% of households were subject to federal tax on their benefits, and it's all because Congress hasn't adjusted the thresholds for inflation since 1983.

You might be tempted to point to the increase in the full retirement age as evidence of congressional action, but that too was hashed out in the 1983 amendments. After 12 years of a static full retirement age (your full retirement age is the point at which you're eligible for 100% of your retirement benefits) of 66 years, in 2017 the full retirement age begins rising once again. In each year through 2022, the full retirement age will increase by two months until hitting 67 years for everyone born in 1960 and after.

For more than three decades and counting, Congress hasn't done much at all to Social Security, and its inaction shows. When the 1983 amendments were passed, the actuarial deficit that needed to be bridged in Social Security was hovering around 1%. The actuarial deficit in 2016, according to the Trustees report, was 2.66%. In dollar terms, we're talking about a cash shortfall of approximately $11.4 trillion. Failing to act for more than three decades could mean more than twice the pain to consumers and/or seniors when the federal government finally does implement changes when compared to 1983.  

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The tough question that needs to be asked

The grim reality is that fixing Social Security is going to require Congress to ask a tough question: Will it reduce the pay of existing retirees, future retirees, or both groups?

As much as Congress would like to keep kicking the can down the road, Social Security is now just 17 years away from running into serious trouble. The only way the program can reasonably be fixed for any extensive length of time is to boost revenue, cut benefits, or blend some combination of the two. No matter what the answer, someone is going to take a pay cut along the way.

If Congress chooses to increase revenue to the program, it could take a number of forms. One method involves boosting the payroll tax rate for all workers. Remember, estimates from the Trustees suggest that a 2.66% increase would bridge the entire budget shortfall through 2090. Furthermore, since employers and employees usually split the payroll tax down the middle, we're only talking about a 1.33% tax increase on most working Americans.

Another possible revenue generator is lifting the payroll tax earnings cap on wealthier Americans. In 2017, all wages between $0.01 and $127,200 face the payroll tax, while any income above and beyond $127,200 avoid this tax. Lifting the earnings cap or eliminating it entirely could generate more revenue for the program. Either way, working Americans would lose out on some of their income.

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If Congress chooses to work from the benefits side of the equation, current or future retirees would have to work with less. For instance, raising the full retirement age to 68, 69, or 70, which would take into account rising life expectancies, cuts benefits for all future retirees. Seniors would either need to wait longer to receive their full retirement benefit or they'd have to accept a potentially steeper reduction in benefits by filing early.

Similarly, moving to the Chained CPI to calculate cost-of-living adjustments (COLA) and away from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) would hurt current retirees by providing smaller annual "raises." The Chained CPI factors in substitution, which describes the act of trading down to less expensive goods or services if the price of another good or service rises too much, while the CPI-W does not take substitution into account. Thus, the Chained CPI would provide smaller COLAs than the CPI-W.

These are going to be unpleasant questions for Congress to tackle, but the fact remains that it needs to face the facts sooner rather than late. Otherwise, the fix is really going to sting.