Will Social Security Be Around for Millennials?

Summary

Social Security is facing a troubling future, with concerns about its sustainability as the Trust Fund is set to run out by 2034. Despite myths about the fund being raided, the system has accumulated a surplus through investments in Treasury bonds. The growing number of retirees and fewer workers paying in means that benefits will be reduced by up to 25% without reform. Possible solutions include raising taxes, adjusting the retirement age, or means-testing for the wealthy. With Social Security impacting millions, finding a solution is crucial to ensure future generations aren't left without support.

Takeaways

• 😀 Social Security is in trouble, with concerns about its long-term solvency, especially as the Trust Fund is set to be depleted by 2034.
• 😀 Social Security is a pay-as-you-go system, meaning current workers' taxes pay for current retirees' benefits.
• 😀 The Social Security Trust Fund has accumulated nearly $3 trillion through investments in special issue bonds, which is often misunderstood as being 'raided'.
• 😀 America's aging population and declining birth rates pose a major challenge to Social Security's future, with the elderly population expected to grow from 14% to 23% by 2080.
• 😀 If nothing changes by 2034, retirees will still receive benefits, but they will be reduced by 20-25% as the Trust Fund runs out of money.
• 😀 Potential solutions to the Social Security shortfall include reducing benefits, raising taxes, increasing the retirement age, or means-testing for wealthier Americans.
• 😀 Social Security tax is currently 12.4%, with income above $128,900 not being taxed for Social Security, but some propose raising taxes to preserve the program.
• 😀 77% of voters support raising taxes to preserve Social Security for future generations.
• 😀 A possible solution is raising the full retirement age, which has already been raised from 62 to 67 for those born after 1960.
• 😀 Privatizing retirement plans is considered a less likely solution, given the low savings rates of Americans and the high favorability of Social Security among the public.
• 😀 8 in 10 Americans believe Social Security is beneficial to the country, with nearly 9 in 10 considering it more important than ever.
• 😀 Even if no major changes are made, Social Security will still provide some benefits, albeit at reduced levels, for retirees in the future.

Q & A

What is the current financial situation of Social Security?

Social Security is facing a financial shortfall. The Trust Fund is projected to run out of money by 2034. After that, the system will still receive tax revenue, but it will only be able to cover about 79% of the benefits owed to retirees.

How is Social Security funded?

Social Security is a pay-as-you-go system, meaning that current workers' taxes are used to pay current retirees' benefits. The program doesn’t rely on pre-funded investments, unlike company pensions.

What was the purpose of the Social Security Trust Fund?

The Trust Fund was created to store surplus funds. In 1984, President Reagan’s changes allowed the system to collect more money than it paid out, and the excess was invested in special Treasury bonds, earning interest.

Is it true that the Social Security Trust Fund has been 'raided'?

No, the Social Security Trust Fund has not been raided. The surplus funds were invested in Treasury bonds, which earn interest. The idea that the funds were stolen is a myth.

How many people currently rely on Social Security?

As of the latest data, 169 million Americans are paying into Social Security, and 61 million are receiving benefits.

What is the average Social Security retirement benefit?

In 2019, the average Social Security retirement benefit was $1,461 per month.

What would happen if Social Security’s Trust Fund runs out?

If the Trust Fund runs out in 2034, the program will still be able to pay benefits using ongoing payroll taxes, but those benefits would be reduced to about 79% of what is currently owed.

Why is Social Security facing financial problems?

Social Security’s financial challenges stem from an aging population and fewer children being born. As the number of retirees increases and the number of working-age individuals decreases, fewer workers are paying into the system while more people are drawing benefits.

What are some possible solutions to fix the Social Security shortfall?

Several solutions are proposed, including reducing benefits to match payroll tax income, increasing taxes (such as raising the Social Security tax rate or lifting the income cap), raising the retirement age, or even privatizing the system. The most straightforward solution is to increase the amount of money coming in through taxes.

What percentage of Americans support raising Social Security taxes to preserve the program?

A surprising 77% of Americans support raising taxes to preserve Social Security for future generations.

Is privatizing Social Security a viable solution?

Privatizing Social Security is unlikely to be a viable solution, given the low savings rates of Americans. Many people struggle to save for retirement, so transitioning to a fully privatized system could leave many individuals unprepared for retirement.

How can the retirement age be adjusted to help Social Security?

Raising the retirement age is a potential solution, as life expectancies have increased over time. The full retirement age has already been raised from 62 to 67 for those born after 1960, and further increases could help balance the system.