Are you expecting to be in some capacity reliant on Social Security when you retire? If so, don't worry, you're not alone. According to an April survey from national pollster Gallup, 84% of nonretirees anticipate leaning on Social Security in some capacity when they retire, with 54% expecting it to play a minor role, and 30% anticipating it'll be a major source of income.

For current retirees, Gallup found an even higher reliance on the program. In total, 90% of current retirees need Social Security to make ends meet, including 57% who lean on the program as a major source of income, and 33% who treat it as a minor income source. 

Dice next to a piece of paper that reads, Will Your Social Security Be Enough?

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A true Social Security first for 154 million Americans

But in spite of its well-known significance, the latest Trustees report clearly projects that America's most important social program is headed down the wrong path.

According to the latest report, Social Security's asset reserves, which currently total nearly $2.9 trillion and have been built up since the Reagan reforms were passed in 1983, are expected to be completely exhausted by 2034. Once this excess cash is completely gone, an estimated benefits cut of up to 21% may be needed to sustain payouts through the year 2092, without any further cuts. As a silver lining, if there is one to be found from such a prediction, Social Security isn't going bankrupt.

What's more, rather than 2022 being the first year where more is paid out in benefits than is generated in revenue by the program, as predicted by the Trustees in the 2017 report, the newest annual analysis expects this net cash outflow to begin this year! Even though the intermediate-cost model only expects $1.7 billion more to be paid out in benefits than is generated in revenue, it'll nonetheless be the first time Social Security has been on track to be cash-flow negative since 1982. 

Put in another context, this'll be the first time, according to U.S. Census Bureau estimates from the latter half of 2017, that 154 million Americans currently between the age of 1-day-old and 35 years and 364 days old, will witness Social Security spend more than it generates in a given year. 

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What's wrong with Social Security?

You might be wondering what on Earth went wrong for such a vital program to be turned on its head. The answer is that it's not a single problem, but rather a perfect storm of issues.

For starters, baby boomers do take some blame, through no fault of their own. A spike in baby births between 1946 and 1964, combined with recently declining birth rates, means the worker-to-beneficiary ratio is falling as more boomers become eligible for Social Security benefits. There simply aren't enough new workers entering the labor force to counteract the number of boomers becoming eligible for benefits.

Second, longevity has played a role. When signed into law in 1935, the presumption of lawmakers was that Social Security would provide retirees a benefit for a short number of years. However, since 1960 we've witnessed the average Americans' life expectancy climb by nine years. Per the Social Security Administration, the typical 65-year-old will live another 20 years, thusly straining Social Security.

Income inequality is a third problem. Since the wealthy have no financial constraints, they're able to receive preventative medical care and medicine. The same can't be said of lower-income individuals and families. Thus, a notable gap has emerged in life expectancy between the rich and poor. The rich are living significantly longer and, as a result, have been able to receive a large benefit check from Social Security for an extended period of time.

Finally, blame Congress. The Trustees report has been very clear that the longer lawmakers wait to act, the more painful fixing Social Security will be on working Americans and retirees. It's been 35 years since there was a major overhaul of the program.

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This'll make your blood boil

This latter point -- congressional inaction -- is the real kicker here.

You see, lawmakers have no shortage of solutions with which to resolve Social Security's $13.2 trillion cash shortfall between 2034 and 2092. The issue is that both political parties have a solution that works, and therefore neither side is incentivized to work with the other.

Democrats have long favored increasing or eliminating the maximum taxable earnings cap associated with the 12.4% payroll tax on earned income. As of 2018, all wage income up to $128,400 is subject to Social Security's payroll tax. Meanwhile, the small percentage of workers (less than 10%) who earn more than $128,400 a year have any extra income above this amount exempted from the payroll tax. Democrats want to fix that by having the rich pay more.

Republicans prefer fixing Social Security by raising the full retirement age, or the age at which you become eligible for 100% of your retirement benefit, as determined by your birth year. Currently set to peak at age 67 by 2022, Republicans would prefer it be gradually raised to between age 68 and 70. In doing so, it would require seniors to wait longer to receive their full benefit, or to accept a steeper reduction in their benefit if they claimed early. Either way, it saves the program money over the long run.

These ideas are nothing alike, yet they'd work marvelously together by tackling two key issues with the program. But with political hubris getting in the way, it's unclear when we, the American people, can expect action from lawmakers. Until that time comes, consider Social Security income nothing more than a Plan B or C for retirement.

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