What is happening?
For soon-to-be retirees and retirees nationwide, Social Security is a big topic of discussion. Nearly half of retirees count on Social Security for at least 50% of their income, and discussions of Social Security “going bankrupt” can be troubling, especially for those people.
Social Security benefits are currently funded through annual payroll taxes paid by both employees and employers, as well as the OASI Trust Fund- a surplus accumulated from these payroll taxes over the years. However, because of the wave of Baby Boomers that have recently or will soon retire, the trust funds are being depleted as the benefits paid out to retirees exceed the amount received through taxes.
While the recent 2024 annual report from the Social Security Board of Trustees estimated that the surplus in trust funds will run out in 2035, there is still no need to panic. Even if the surplus is depleted in the future, experts estimate that recipients would still receive 83% of their expected benefits due to the annual taxes being paid by employees and employers. This figure is an increase from the estimation of 77% of their expected benefits on the previous annual report, showing a step in the right direction. While Social Security remains a concern for many Americans, its situation is not as dire as it is often portrayed.
What may happen in the future?
Legislators are advocating for changes to delay the impact of fund depletion. Experts have speculated that the Social Security Administration may take several measures to delay the depletion of the OASI Trust Fund.
One strategy they may use is pushing back both the early eligibility age (EEA) and full retirement age (FRA), which are currently set at 62 and 67 years old, respectively. This approach would decrease the number of individuals collecting Social Security at any given time and encourage greater economic growth and workforce participation, leading to increased payroll taxes. Additionally, with life expectancies rising in the United States, this strategy would have a minimal impact on the average years spent in retirement. Experts have also suggested increasing taxes on both employees and employers in an effort to shrink the gap between the amount being paid out in Social Security benefits and the amount being taken in through taxes. This is a popular suggestion amongst Americans, as 32% of the polled population said they would expect the government to fund Social Security by increasing taxes.
Lastly, the SSA could decrease monthly benefits for those who are claiming Social Security. This would delay the depletion of trust funds, but the obvious downside would be that individuals would not receive their full expected benefits.
While nothing is confirmed, we may see an implementation of one or any combination of these strategies in the coming years. With that being said, it is important to remember that Social Security is not going bankrupt any time soon!
If you are concerned about how this affects your Social Security claiming strategy or future benefit, do not hesitate to reach out! We would love to connect and get a chance to answer your questions.
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