Will Social Security Be There For Me When I Retire? - Cravitz Financial & Insurance Solutions

Will Social Security Be There For Me When I Retire?

Many have concerns as to whether Social Security will be there for them when they retire. Social Security certainly has it it's financial challenges. According to the 2022 Trustees Report they are projecting that they will be able to pay promised retirement and survivor benefits until 2034. They estimate at that point the trust fund will be depleted and they would only be able to pay 77 cents on the dollar. 

How could they even pay 77% of promised benefits if the trust fund was depleted. And what is the likelihood that they will actually be able to pay 100 percent of promised benefits beyond 2034?

Full Transcript:

Will Social Security even be there for me when I go to retire? This is a question that I get from time to time. So I thought we'd talk about it right here. I can tell you that 100%. I absolutely believe that Social Security will be there for you. And in fact, I believe it'll be there for many, many decades to come. That's not to say that the Social Security system, that the trust fund doesn't have its financial issues. It definitely does. And in fact, let me go ahead and share my screen here with you and we'll look at a couple things here together.

This is coming straight from Social Securities website, ssa.gov. Each year, they put together their annual trustees report. They do this for Social Security and also Medicare. It's really designed in order to determine the projected financial status of each of these programs. And if you go down right here, we're talking specifically about Social Security. And what they have to say is that, based on our best estimates, the 2022 reports determine that the Old-Age and Survivors Insurance, OASI, Trust Fund, which pays retirement and survivor benefits, will be able to pay scheduled benefits on a timely basis until 2034, which is one year later than reported last year. At that time, the fund's reserves will become depleted in continuing tax income will be sufficient to pay 77% of scheduled benefits.

So again, if you take a look here, they're saying you'll get, based on their projections, 100% of promised benefits until the year 2034. And then that trust fund is projected to be depleted at that time. And even though it's projected to be depleted, they're still going to be able to pay out 77% of scheduled benefits, again, based on their projections.

And so, the question that I get asked is, well, if there's no money in the trust fund, how can they still pay 77 cents on the dollar? And the simple answer is it is just based on how it's funded. So Social Security primarily is funded by payroll taxes, and 2021 is an example here. 90% of the total Old-Age and Survivors Insurance and Disability Insurance income came from payroll taxes. So the remainder was provided... Oops. The remainder was provided by interest earnings and revenue from taxation of OASDI benefits. Okay?

So even though they project that there won't be any money in the trust fund by the year 2034, you still have workers that are paying into the system that have to pay the payroll taxes. And then you've got the people that are taking Social Security benefits. So there's people paying into the system and there's people taking benefits out constantly. And so, that's why they're projecting the 77 cents on the dollar, which on the one hand sounds good. 77 cents on the dollar is a lot better than zero, but on the other hand, it's not so good, right? You'd rather get 100% or a hundred cents on the dollar.

So here's the thing, though, what we haven't talked about here yet is that there's all different strategies or all different ideas, I should say, on ways to shore up the system for Social Security long term and which of the different ideas that they ultimately decide to implement and how they decide to implement it perhaps is really anybody's guess at this point. It's really just speculation. But Social Security is a hugely popular program, and that's another part of the reason why I highly believe it'll be there for many, many decades to come.

Now, to shore up the system long term, there's really only a couple things that they can do. They can either reduce benefits or they can increase taxes. On the reducing benefits side, some of the things that they have considered is raising the full retirement age. So I don't think that they're going to do that for anybody that's real close to retirement. But I will say, as an example, if you were born in 1960 or later, your full retirement age is 67, and maybe they'll increase that, or maybe they'll say that for people that were born 1965 or later or 1970 or later, I mean, who knows what they could come up with, but that's one thing that they could do.

They could also reduce the cost of living adjustments or reduce how much people are getting from cost of living. So that's another thing that they could do. Another thing they could do is they could change their formula so that the higher income earners aren't getting as much from Social Security. So it's a little bit more complex, but there's different things that they can do there with their formula so that, again, the higher income earners aren't getting as much. Again, a lot of this is all speculation at this point.

On the tax side, they could raise the payroll taxes. So an employee pays 6.2% right now, and if you're self-employed, you're paying both ends of that. So you're paying double. They could increase that. They could also raise the payroll tax limit. So there's a limit. Changes pretty much each year as to how much you have to pay payroll taxes on. So as an example, you could see right here for 2022, it's 147,000. So if you bank 147,000, you have to pay payroll taxes on all of that. If you make more than 147,000, this is your cap. You're still only paying Social Security taxes here on 147,000.

So again, a lot of this is speculation, but I absolutely believe that they're going to implement some sort of combination of either some of these changes that I've just mentioned right now, perhaps, or maybe others. So hope this helps. If you have any questions on this, let me know. Take care.


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