Millions of seniors today rely on Social Security to pay their bills. But will the program manage to continue paying benefits in the future as it does today?
It's questionable. Though Social Security is not in trouble of going away completely, the program will owe more money in benefits than it collects via payroll tax revenue in the coming years. The reason? As large numbers of baby boomers exit the workforce and start filing for the benefits they've earned, too few workers will enter the labor force to replace them.
Social Security has trust funds it can fall back on to bridge the gap between the benefits it owes and the revenue it receives. But once those trust funds run out, the program may have to cut benefits. And according to the Social Security Trustees, that may happen in as little as 14 years.
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In fact, that projection was made before the coronavirus outbreak. Once the Trustees are able to assess the pandemic's impact on Social Security, that timeline could change, and not for the better.
But despite all of this, confidence in Social Security is fairly high, according to a recent survey by the Employee Benefit Research Institute. In fact, 72% of retirees and 53% of workers say they think the program will, in the future, manage to provide benefits of at least equal value to those received today. But is that confidence largely misplaced? Or does Social Security have a fighting chance?
An uncertain outlook
Right now, Social Security's future is iffy -- but lawmakers have the power to change the program's outlook for the better. President Biden, in fact, already has one idea that could drum up extra revenue for the program. He's proposing to reinstate Social Security taxes on income of over $400,000. Right now, only wages of up to $142,800 are taxed.
There are other options to play with, too. Each year, the wage cap for Social Security tax purposes tends to rise with inflation, but lawmakers could always vote to impose a higher cap, or even eliminate the cap altogether so that workers pay into Social Security from all of their income.
Of course, nobody wants more taxes, and this option may be met by resistance among some lawmakers. But it's a possibility nonetheless.
Another idea that's been thrown around is the idea of means-testing seniors to see if they really need Social Security and cutting or eliminating benefits for the well-off. Of course, many will argue that since the wealthy pay into Social Security, they deserve to collect it in retirement, but it is another idea that's been put out there.
All told, Social Security's trust funds aren't running out tomorrow, so lawmakers have a little time to come up with a solution to its pending revenue shortfall. But they don't have a lot of time, so the sooner they get moving, the better it will be for Social Security and the many seniors who depend on it.
Current workers, meanwhile, should make an effort to boost their savings to make up for any benefit shortfall that comes. Cutting benefits may be the only option for Social Security down the line, and compensating with higher savings balances could help future seniors avoid getting hurt financially once it's their turn to leave the workforce for good.
