Social Security is more vital to millions of Americans than many people appreciate. As of December, it was serving nearly 68 million Americans with retirement benefits, disability benefits, and survivor benefits, and those benefits made up roughly 30% of the income of folks over 65. Even more eye-opening is this tidbit from the Social Security Administration: "Among Social Security beneficiaries age 65 and older, 12% of men and 15% of women rely on Social Security for 90% or more of their income."
Considering how critical Social Security is, it's fair to worry whether it will still be around when you need it. And that's just what 71% of respondents reported doing, in a Transamerica Center for Retirement Studies survey. Should you worry, too?
Image source: Getty Images.
What's the problem with Social Security?
There is a problem with Social Security. Remember that it works by taking in payroll taxes from workers and then using those funds to pay benefits to retirees. Well, for many, many years, the program has run a surplus, collecting more than it paid out. But with people living longer, in general, these days and many people retiring early, the days of having a fat surplus are ending.
Check out the table below, showing how the ratio of covered workers (those paying taxes into the program) to beneficiaries (those collecting benefit checks) has changed:
|
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 |
|
2023 |
2.7 |
Source: Social Security Administration.
So what happens now? Well, according to the Social Security trustees' 2023 report on the health of the program, "The Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay 100% of total scheduled benefits until 2033... At that time, the fund's reserves will become depleted and continuing program income will be sufficient to pay 77% of scheduled benefits."
That's bad news, but it doesn't mean that Social Security goes away or that benefits dry up and go away entirely. Instead, come 2034, beneficiaries might be receiving only 77% of the benefits due to them. So if you're worrying, you do have reason to worry.
Good news regarding Social Security
Keep in mind, though, that Social Security's health and future is up to our elected representatives in Washington, who have the power to shore up Social Security and to even make it stronger.
Better still, there are lots of ways to do so powerfully, so all that is needed is the will. (It can't hurt for you to contact your representatives and let them know your thoughts on the matter.) Here are some proposed fixes for Social Security:
- The Social Security payroll tax can be increased, from the current 6.2% that workers pay (and which is augmented by another 6.2% from employers) to 7.2% or some other rate.
- The earnings cap beyond which no one is taxed for Social Security could be raised -- or eliminated. Right now, there's an annually adjusted maximum earning level that's taxed for Social Security. It's $168,600 for 2024, so someone earning $168,600 and someone earning $11,168,600 will pay the same sum into Social Security's coffers. The higher that cap, the more income will flow into Social Security, and eliminating it so that everyone pays on all their earnings will make Social Security stronger still.
- Some in Washington today are proposing raising the full retirement age from the current 67 to, say, 69. That would keep more people working longer, adding more to the coffers.
- Some have also suggested not allowing people to start collecting benefits at age 62 and making 64 the new minimum age. (Again, if you do or don't like these proposals, let your representatives know.)
But there's bad news, too
All that is encouraging, but there's some bad news, too. The current climate in Washington is not wholeheartedly in support of Social Security and making it whole or stronger. More than a few people in power would like to see it weakened or eliminated.
So go ahead and worry, but don't worry too much. There's a perfectly good chance that Social Security will keep working for you tomorrow as it's working for others today. There's a chance that the program can be weakened, but the worst-case scenario might be that nothing at all is done, in which case benefits will simply shrink.
The most appropriate response to all this might be to hope for the best but prepare for the worst -- which means saving and investing for retirement and building a sufficient nest egg.
