About 70 million Americans receive Social Security advantages. That number is sure to rise in the coming years as more baby boomers retire.
For people age 65 or older, more than 40% of recipients receive 50% or more of their income from Social Security. Millions of them retirees would be impoverished without social security benefits:
Here are some lingering questions about the program:
Will it go bankrupt? According to the latter report from the Social Security Administration, the trust fund will pay out more money than it brings in starting in 2034.
Social Security is a pay-as-you-go program funded by current tax revenues. With more people retiring than ever before, we expect an increase from 2.7 employees per beneficiary to 2.3 by 2035.
That puts some pressure on the funds, which are inflation-adjusted.
But these kinds of things are governed by mathematics. The actuaries model 75 years into the future every year. The trust fund will still cover about 80 cents on the dollar in mid-2030:
That’s not ideal, but it’s not the end of the world either.
Can young people still expect benefits? If nothing is done, the SSA still expects Social Security tax revenues to be about 70 cents on the dollar in 2099 (when I’m 118 years old).
So yes, young people can expect to receive some Social Security Benefits.
Can we fill the gap? It depends on what the politicians decide to do.
They could simply finance the difference by diverting spending from elsewhere or taking on more debt. We are good at borrowing more money.
You could also reduce future pressure by raising the retirement age for, say, people who are currently under 40 or 50. You could raise the limit on earnings subject to Social Security taxes to bring in more income.
There are some simple solutions if anyone ever wants to tackle this.
What if they cut benefits? That’s another option. People could get 80 cents on the dollar in the 2030s if they don’t agree on a solution by then.
You never know what politicians will do tomorrow, let alone in eight years.
But I can’t imagine a politician being that stupid brave enough to cut benefits. It would be political suicide.
A AARP Survey found that 95% of Republicans, 98% of Democrats and 93% of independents support Social Security. We can’t get more than 90% of people to agree something these days.
I don’t know what the future holds, but social security is not a major concern for me.
How and when retirees decide to apply for benefits in the coming years will be important.
Continue this week Talk about wealth I spoke to Mike Piper from Ignorant investor about the program’s solvency, when to claim your benefits, the average size of the Social Security check, and much more:
Be sure to check out Mike’s free Social Security calculator at Open Social Security.
The podcast version is here:
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Further reading:
The most important pension plan ever created
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