Around 70% of workers are concerned that Social Security will not be there for them when they're ready to retire, according to a 2022 survey by the Transamerica Center for Retirement Studies. Millions of seniors rely on their benefits in retirement, and many people are worried that the program is on the verge of bankruptcy.
There's bad news and good news about the future of Social Security. The bad news is that benefit cuts could be on the horizon. But the good news is that the problem isn't as dire as many people believe. Here's everything you need to know.
Image source: Getty Images.
Is Social Security running out of money?
It's true that Social Security is facing a cash shortage, and if the problem is left unchecked, it could result in benefit cuts.
The root of the problem is that the program's expenses outweigh its income. This is due, in part, to baby boomers retiring in droves and older adults having longer life spans. As a result, the Social Security Administration (SSA) has been paying out more in benefits than it's receiving from taxes.
To cover this deficit, the SSA has been dipping into its trust funds. This has allowed it to continue paying out benefits in full, despite the cash shortfall.
However, those trust funds are expected to be depleted by 2035, according to the latest estimates from the SSA Board of Trustees. Once that happens, the money coming in from taxes and other income sources will only be enough to cover around 80% of projected benefits.
In other words, if nothing happens over the next decade, benefits could be cut by around 20% by 2035. But benefits aren't going away completely, and there are several ways to potentially solve the problem and avoid cuts.
Big changes could be coming to Social Security
Fortunately, lawmakers have several potential solutions on the table. So far, though, they haven't been able to agree on anything. A few of the most popular ideas include:
- Raising taxes on the wealthy: Currently, workers only have to pay Social Security taxes on income up to $147,000 per year. But some lawmakers have proposed taxing income above $400,000 per year, too. That would increase Social Security's income, providing more money to pay out in benefits.
- Increasing the full retirement age: The full retirement age is between ages 66 and 67, but some regulators have suggested raising it to age 68 or above. Under that proposal, seniors would need to wait longer to receive their full benefit amount. That, in turn, would mean collecting less over a lifetime, decreasing Social Security's expenses.
- Decreasing benefits for the highest earners: Another proposal is to reduce benefits for the top 20% of earners. These workers would still receive higher-than-average payments, but less than they would have previously -- thus reducing the program's expenses.
Again, nothing is set in stone yet, as lawmakers haven't agreed to any of these solutions. Also, none of these solutions on their own would solve all of Social Security's cash-flow problems, so Congress may need to implement multiple ideas to avoid future benefit cuts.
While Social Security may be facing financial setbacks, it's not going bankrupt. As long as workers continue paying taxes, there will always be some money to pay out in benefits. But if Congress is unable to find a solution before 2035, benefit cuts could be on the table.
