Who’s Ready to Cut 23% of Social Security Benefits? | Smart Change: Personal Finance
Social Security is arguably the most successful and reliable social program in the United States. When national pollster Gallup conducted a survey of retired beneficiaries and future retirees in April, it found that 89% of current retirees rely on their monthly benefits to some degree to make ends meet. Meanwhile, 84% of non-employees believe they will need Social Security income as a “primary” or “secondary” source of income when they leave the workforce.
Given how important Social Security is to the financial well-being of our country’s current and future retirees, the program’s success and longevity are critical. Unfortunately, the most recent data from the Social Security Board of Trustees 2022 report indicates that the program’s future remains shady, at best.
Say goodbye to nearly a quarter of your Social Security retirement benefit?
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For each of the past 82 years, the lengthy Social Security Board of Trustees report provides an overview of incoming program revenue, outgoing spending, and the many variables that make up its average (10-year) and long-term (75-year) projections. Although these projections are flexible and subject to change, this report has been ringing warning bells about the future of Social Security since the mid-1980s. The 2022 report is no different.
According to the latest projections, the entire Social Security program, which includes the Older Persons and Survivors Fund (OASI) and the Disability Insurance Fund (DI), faces a cash shortfall of $20.4 trillion between 2022 and 2096. But things get worrisome for the social community’s most important component of security before Long period of the nineties of the twentieth century.
Based on the latest estimates, OASI is expected to deplete its asset reserves — the additional revenue the program has brought in since its inception and invested in special-issue bonds — by 2034. That’s $2.753 trillion, as of December 31, 2021, expected to disappear completely within 12 years approx.
On the one hand, it’s very important To understand that the depletion of the reserves of OASI assets does not – I repeat, no – Means that the program is insolvent or benefits payments disappear. As long as people continue to work, payroll tax returns will be collected. The payroll tax on earned income is what provides the bulk of Social Security revenue. If you qualify for the retired worker benefit, you will receive a monthly return, when you qualify.
However, the amount you receive may be much less than expected. The 2022 Trustees Report estimates that once your OASI asset reserves are exhausted, you will only be able to pay 77% of estimated benefits through 2096. In simpler terms, retired workers and surviving beneficiaries could see a 23% decrease in their monthly social security payout by 2034. Although this came a year after the Trustees’ report forecast for 2021, it’s not a comfortable outlook for current and future retirees.
Social Security deals with many headwinds
Although the COVID-19 pandemic has done no good to Social Security, the expected benefits that come in 2034 for retired workers are not to blame. Instead, more than half a dozen demographic transitions and macro factors have worked against Social Security for the long haul.
You are probably well aware of some of these changes, and you haven’t paid close attention in the context of how they might hurt or strain your Social Security program. For example, baby boomers have been leaving the workforce in increasing numbers and there are simply not enough new workers to replace them, which has resulted in a lower worker-to-beneficiary ratio. To add, we’re also living longer, putting more pressure on a program that wasn’t designed to pay seniors for decades after they retire.
Meanwhile, a host of demographic shifts related to birth rates, immigration, and income inequality have worked against Social Security.
According to a report from the Centers for Disease Control and Prevention (CDC), the fertility rate in the United States — a hypothetical measure of the number of children a group of 1,000 women will have over their lifetime — has reached an all-time low of 1.6 inches. 2020. The CDC notes that the fertility rate in the United States needs 2.1 per generation to replace itself. Fewer births will almost certainly affect the worker-to-beneficiary ratio and result in less collection of future payroll tax revenue.
Something you might not realize about Social Security is that the program relies on a steady stream of legal immigrants to the United States. Immigrants to the United States tend to be younger, and thus spend decades in the workforce to generate payroll tax revenue for the program. Since the mid-1990s, immigration to the United States has almost halved.
High income inequality is also a problem. Earned income over $147,000 is exempt from payroll tax (as of 2022). In 2016, this payroll tax cap allowed $1.2 trillion in income to escape taxes.
To boot, the rich have little or no financial limitations when it comes to getting preventive medical care or prescription medications. As a result, those who are well off tend to live longer and collect more monthly benefit than people who already depend on Social Security for their financial well-being in retirement.
But wait there is more
If there is a silver lining in all of these issues, it is that lawmakers on Capitol Hill, historically, came to the rescue of Social Security at the eleventh hour.
With the program facing similar fears of depleting reserve assets in the early 1980s, Congress, and then-President Ronald Reagan signed, what became known as the 1983 Social Security Amendments. This was the last, bipartisan overhaul of Social Security, which eventually introduced a tax on benefits, and gradually increased the full retirement age to 67, and steadily raised the payroll tax rate on earned income. History may at least indicate a good possibility that lawmakers will eventually step in with another solution to boost Social Security.
However, Social Security issues extend far beyond just the demographic shifts described earlier. Even if lawmakers pass bipartisan legislation to boost OASI before 2034, the purchasing power of Social Security income is liable to continue to decline.
The Seniors Association, a high-level, nonpartisan advocacy group, released a report in May that examined the impact of inflation on retired recipients since 2000. While the program’s total cost of living adjustments (COLAs) have been at 64% since 2000, an estimate. The 130% increase is what was needed to keep pace with the increasing costs that seniors face. The end result is a loss of 40% of the purchasing power of Social Security income in 22 years.
Fixing this problem may be more difficult. Although lawmakers of both parties recognize that Social Security is not doing a good job of accurately accounting for the inflation that retired workers face, neither political party has been willing to work with the other to find a common solution.
Whether the 23% reduction in benefits in 2034 due to the depletion of OASI asset reserves, or the continuing loss of purchasing power, retired Social Security workers face an uncertain future.
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