If you've heard that Social Security is in trouble and that it won't be around for long, that's only partly true. The vital program is in trouble -- but that doesn't mean the program will implode or disappear.
Even better, there are ways to address Social Security's issues and to bolster the program -- or even make it stronger. Here's a closer look at the problem and the possible solution(s).
Image source: Getty Images.
Social Security's surplus is being depleted
Social Security's trustees issue annual reports on the health of the program, and in the 2023 report, they gave the latest update on the program. As they see it, the Old-Age and Survivors Insurance Trust Fund that funds retiree and survivor benefits will only be able to pay full benefits until 2033. After that, there won't be excess reserves in the trust fund, and income for the program will only cover 77% of scheduled benefits.
If you're wondering how this happened, it's all a matter of history. Social Security works by collecting taxes from millions of workers and using that money to pay beneficiaries their benefits. For decades, this has been effective, and Social Security even ran a surplus. That's because there have been many more workers paying into the program than beneficiaries drawing from it. The program's surplus has been shrinking, though, and is due to disappear in 2033.
A look at how the ratio of covered workers (those paying taxes into the program) to beneficiaries (those collecting benefit checks) has changed is instructive:
|
Year |
Ratio of Covered Workers to Beneficiaries |
|---|---|
|
1945 |
41.9 |
|
1955 |
8.6 |
|
1975 |
3.2 |
|
1985 |
3.3 |
|
1995 |
3.3 |
|
2005 |
3.3 |
|
2015 |
2.8 |
|
2020 |
2.7 |
Source: Social Security Administration.
How to fix Social Security
So here's the good news: There are many ways to shore up Social Security. The Nationwide Retirement Institute's 2023 Social Security Survey reviewed a bunch of them and determined which options are most popular.
Below are seven potential changes to the program, along with survey respondents' support for each.
|
Proposal, in short |
Somewhat support |
Strongly support |
Total support |
|---|---|---|---|
|
Increase the Social Security payroll tax and remove the earnings cap above $400,000 |
41% |
30% |
71% |
|
Increase minimum eligibility age from 62 to 64 |
45% |
23% |
68% |
|
Increase the Social Security payroll tax |
43% |
23% |
66% |
|
Increase the full retirement age to 69 |
32% |
18% |
51% |
|
Limit inflation adjustments to 1% per year |
29% |
9% |
38% |
|
Reduce benefits for 1% per year for 25 years |
24% |
10% |
34% |
|
Reduce benefits by 20% |
17% |
8% |
25% |
Source: Nationwide Retirement Institute.
Here's a bit more on what each proposal entails. The most popular one, with 71% support, is two-pronged, increasing the 6.2% tax that workers pay into the program to 7.2% (employers currently contribute an additional 6.2%) and also removing the earnings cap beyond which no one is taxed for Social Security. That cap is $160,200 for 2023. If there were no cap, someone earning, say, $1 million would be taxed on all that income. (Right now, those earning $160,200 or less are taxed on all their income.) It's been proposed that earnings above $400,000 also be taxed.
Right now, beneficiaries can start collecting retirement benefits as early as age 62. The second-most-popular proposal, with 68% support, would delay that to age 64, beginning with those who are 50 or younger. Older folks would remain eligible to start at 62.
The third most popular is increasing the 6.2% tax paid by both workers and employers to 7.2%.
The fourth most popular -- barely supported by a majority, at 51%, is increasing the full retirement age for those aged 50 or younger to 69 from 67. The full retirement age is the age at which you're eligible to collect the full benefits to which you're entitled, based on your earnings history.
The fifth most popular, at 38%, is limiting Social Security's cost-of-living adjustments (COLAs) to only 1% per year. This will clearly have benefits not keeping up with inflation, which has averaged more than 3% over many decades.
The sixth most popular, at 34%, is reducing benefits by 1% per year for 25 years, while the least popular proposal, with only 25% support, is reducing benefits by 20%.
It's important to remember that Social Security is not running out of money, and it won't, as long as there are workers paying into the program. But our representatives in Washington need to address the looming shortfall in the near future. Based on the survey results above, Americans are much more interested in raising tax rates than in cutting benefits. You might want to contact your congressional representatives to inform them of your own preferences. In the meantime, be sure you're saving and investing for retirement so you'll have more income than just Social Security.
