There is a lot of misinformation out there about Social Security. It’s one of those topics that people know is important but don’t take the time to learn more. As a result, they’re prey to radical, dramatized “click-bait” news stories that promote doom and gloom. Yes, Social Security faces challenges, but the situation is nuanced and complicated and we’re here to explain why.
Taylor Tepper of Forbes Magazine does an excellent job clearing up the misinformation revolving around Social Security. Social Security struggles with insolvency, but what does that mean? The truth is that Social Security is not going anywhere, but it runs the risk of changing.
Many people have the misconception that they fund their own Social Security, when in reality, it is the younger workforce funding the Social Security Trust with their taxes. Additionally, the Social Security Trust has earned income from investing. The interest earned from those investments and the younger generation’s payroll taxes have been the main sources of income for Social Security benefits.
The problem is that the money coming in isn’t enough. In 2021, on average 10,000 people retire every day. The retiring generation is larger than ever before, big enough that the traditional sources of income can’t keep up. With tax and interest income not enough, future benefits will have to draw from the Trust itself. If that becomes the case, Social Security will struggle with insolvency over the next decade.
If the Trust is depleted in 10 years, it will not mean the end of Social Security. However, our benefits will be affected. We will always have the younger working generation fueling some type of benefit. Those benefits will be about 25 percent less than what we receive today. Obviously, no one wants this, but Social Security will remain.
What Can Be Done?
Luckily, there are options to ease Social Security’s struggles. All these options remain with Congress, who often put off dealing with Social Security specifically because of how political it can be. We always have the right to let our representatives know that Social Security is our priority now.
It boils down to two courses of action. Congress can adjust the Social Security system itself or adjust taxes that fund Social Security. If they choose to adjust Social Security, options include raising the retirement age to delay people taking benefits; COLAs can be lowered or be switched with a different manner of adjusting payments; alternatively, higher earners could earn smaller benefits.
Again, dealing with Social Security can be seen as political, regardless of political alignment. Congress is more than likely to adjust the tax system, rather than deal with the Social Security platform itself. Taxation options include increasing payroll taxes for the workforce, increasing the taxable minimum so high earners pay more taxes, or taxing fringe benefits like employer health benefits.
Of course, there is no one clear path forward. There are additional tax loopholes that hinder Social Security that should be stopped. The takeaway is this: Social Security struggles but it isn’t a hopeless situation. Get involved and arm yourself with the knowledge of what we’re actually up against with Social Security. The Council for Retirement Security is working to protect seniors benefits, so no matter the struggle, Social Security will be there for the people that have earned it.