Social Security is not in the best financial shape. In the coming years, the program expects to owe more in scheduled benefits than it collects in revenue as baby boomers stage a mass exodus from the workforce. And if lawmakers don't manage to find ways to pump more money into Social Security, benefit cuts will be a distinct possibility once the program's trust funds run dry.
Of course, benefit cuts could be catastrophic to the many seniors who get most or all of their income from Social Security today. And those cuts could also put future retirees in a dire financial spot.
That's why it's so important that Social Security do what it can to conserve funds and snag all the revenue it can get. And one way it's been trying to go about the latter is aggressively clawing back benefits as a result of overpayments.
Image source: Getty Images.
But now, lawmakers are trying to get Social Security to halt that practice. And while it's easy to see why they're doing so, it could make Social Security's financial situation even worse.
The program needs money to stay afloat
Social Security gets the bulk of its revenue from payroll taxes. So the fact that baby boomers are exiting the labor force in droves is not a good thing.
Sure, there are younger workers coming in to replace them. But they're not expected to do so at a fast enough rate to keep Social Security benefits payable in full.
That's part of the reason Social Security has been so aggressive in trying to recoup overpayments. The program managed to regain $4.7 billion of overpayments during the 2022 fiscal year. But as of the end of that same fiscal year, it was still down $21.6 billion in outstanding overpayments. So clearly, the program has a lot more money it wants to collect.
But lawmakers aren't so happy with Social Security's pursuit of its money. And the reason is understandable.
Social Security overpayments often result as an error on the part of the program, and the people who receive more money than they're entitled to aren't any the wiser. As such, going after that money puts many seniors in a dire financial spot.
Many people in that boat, frankly, don't have the money to repay the Social Security Administration (SSA). And since they didn't knowingly accept that extra money, lawmakers feel that the SSA needs to back off and stop trying to collect it.
Rep. Mike Carey of Ohio, the No. 2 Republican on a House panel that oversees Social Security, recently called for a congressional hearing on the program's efforts to recoup overpayments. And other lawmakers have similarly tried to get involved in urging the SSA to stop seeking that money. The goal is to avoid burdening seniors who are being asked to repay funds they can't afford to part with.
Of course, that then begs the question -- if Social Security were to stop going after those overpayments, just how badly would that hurt the program's finances? And how much more likely will broad benefit cuts be in that scenario?
A tough situation no matter what
It's easy to argue that seniors who received extra Social Security benefits should not be asked to repay that money -- especially since, for many, those requests are coming in years after the fact. But the reality is that Social Security needs as much money as it can get to keep up with scheduled benefits. And if the program stops trying to claw back erroneous payments, it might reach the point of insolvency sooner.
That's why lawmakers really need to step up and focus on not just the program's practice of recouping its money, but a long-term solution to Social Security's financial woes. That could take a number of forms, from a delayed full retirement age to increased taxes. Going after cash-strapped seniors to keep Social Security afloat may not be the answer to the program's fiscal problems, but it's easy to see why the program is desperate to recoup as much money as it can.
