A guy at work keeps telling me that Social Security is going to go broke so I better not count on getting any benefits from it when I retire (I’m in my late 20’s). I make a decent living and have been saving in my 401(k) since the first day I became eligible, but I don’t like the thought of paying taxes to Social Security and not getting to use it. What’s going on?
There has been no shortage of discussion in the media, on Capitol Hill, and in break rooms across America over the years about the state of Social Security and what to do about it. There is a fear that, like your coworker said, Social Security is going to go bankrupt and benefits paid to retirees who’ve paid into the system for decades won’t get their expected benefits.
This is a case of your co-worker being right and wrong, all at the same time.
There’s a handy report published by the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance (OASDI) Trust Funds (that’s Social Security to you and me) with tons of data and information in it. If you want to check it out for yourself, click here. I’ll warn you now, it’s not exactly a page turner. But, good news, this report addresses the very question you’re asking.
I’m going to give you the bad news first, so prepare yourself. That being said, it’s not quite as dire as it may seem. You’ll see.
As things sit now, the Social Security Trust Fund that is responsible for retirement benefits will be depleted around 2035. If Congress can find some common ground soon, it’s possible that this cliff can be avoided like it was in the early 80’s. That’s right, we’ve played this game before. Under most scenarios that offer solutions to fix the situation, taxes go up. In some cases, income caps are removed so higher income earners pay payroll taxes on more of their income. In other cases, additional taxes are implemented on investment income if you make more than a certain amount of money and income caps are scrapped. You can start to understand why fixing the system isn’t going to be easy when you realize that it’s a tax issue, and no one likes to have their taxes raised.
But, what if Congress doesn’t fix it? If 2035 comes and we’re no closer to significant legislation to address the issue, what happens?
The OASDI Trust Fund report tells us that our retirees will still get benefit checks, just smaller ones. The current projection is that the checks will shrink by 20-25%. Sure, that stinks, but it’s a far cry from getting nothing.
How long could Social Security last sending reduced checks? The OASDI Trust Fund report estimates that they could continue paying reduced benefits at least into the 2090’s based on current projections.
I don’t know if this makes you feel better, Cody, but this is where we stand. A great number of Americans depend on their Social Security checks as their primary source of retirement income and any decrease in benefits will impact them greatly. If you’re not in that situation, you should still be concerned about this because, well, other people are in that situation. An increase in the poverty rate amongst seniors and the disabled, some of our most vulnerable community members, isn’t something I care to see for a number of reasons, and I doubt you do either. Encourage your Representative and Senators to look at this issue with fresh eyes, a compassionate heart, and to approach any policy debate with a spirit of compromise regardless of which side of the aisle they sit on.
This is a problem that can be solved, Cody. The country, however, needs to determine if it wants to pay the price.
Damian is the lead Financial Concierge on Your Money Line, the financial help line serving all Pete the Planner® Financial Wellness clients. Damian is a CERTIFIED FINANCIAL PLANNER™ professional and loves answering your money questions. Despite sharing a last name and sense of humor, Damian and Pete are not related.