Social security is the most prominent social insurance program in the US, but is it really here to stay?
While the Social Security Administration (SSA) provided more than $1 trillion USD in benefits in 2018, the funds will not last forever, right?
So, when will Social Security run out? Let’s attempt to clear the air a little and talk about the future of SSI benefits as they stand today.
Social Security Explained
Social security hails back to the 1930s. Back then, President Franklin D. Roosevelt launched a social insurance program to support retired workers with a continuing income. The original aim of social security was to help workers fund their benefits through their income taxes.
In 1939, social security extended to include dependents and survivors of people who originally earned social security benefits. Coincidentally, this enabled blue-collar workers to also do some estate planning and take care of their loved ones.
Social Security Today
According to the Social Security Administration (SSA), there is a cash deficit in the social security insurance program. In order to cover that deficit and keep paying out benefits to current retirees, the SSA has been withdrawing money from trust funds to cover the deficit.
However, this is probably not a sustainable condition. Experts estimate that the trust funds will be exhausted by 2037 or earlier without some sort of structural change. Some analysts expect the funds to run out as early as 2029. Until then, current retirees will continue to receive their full social security benefits, but the future is currently, uncertain.
The Future of Social Security
So, what will happen after the trust funds run out? After that time, the SSA may have to either increase the payroll tax rate or reduce the social security benefits.
Initially, the current taxation could be enough to cover ~76% of all expected benefits due. This means that social security benefits would be less while the income tax would remain the same or even increase. To amend this, Congress must adjust the funding of SSA.
What Does This Mean For People Who Are Currently in the Work Force?
If you are currently employed but will hit retirement age close to 2037, you need to plan your future carefully. While social security will not go away, it could represent less actual income compared to what it is today.
Right now, social security cannot keep up with the spending needs of seniors, and this trend will only grow as time goes by. That is why it is a good plan not to rely solely on social security.