Are social security benefits really going to end? For years there have been claims that the U.S. economic safety net for seniors has been at risk of running empty. Last week, a report circulated indicating that the fund that keeps seniors in the U.S. afloat would be empty by 2033. The coronavirus pandemic worsened the financial outlook of social security for Americans. A report from just a year earlier indicated that it would run out by 2034.
Advocates of the social safety net say it will require Congressional action. Over the next decade, the program will run without issue and seniors will continue receiving payments from the Social Security Administration as they have thus far.
One thing that’s been overlooked is that while ‘insolvency’ has been a big headline since the report on social security was released, it doesn’t mean benefits will stop being paid at that date. Benefits will likely have to be slashed at that stage, but people will have been paying into the system without interruption for decades, meaning some money will be available.
What will be needed to fix Social Security?
It will take an increase in taxes, cut to benefits, or restructuring of the timeframe in which a person can begin collecting social security benefits. This has been one of the most-debated portions of the social security system, in which Republicans have suggested in the past that raising the age of retirement as a means to fix it.
However, it’s hard to imagine a scenario where taxes do not also have to increase to some degree in order to keep the system afloat.
How much would social security benefits need to be cut?
The short answer is 25%. Estimates have indicated that the fund could continue paying out approximately $1 for every $4 in earned benefits. While that might seem like a good answer on paper, it likely will not be for the millions who receive them.
However, it will likely be an even bigger chunk for low income social security recipients. Benefits could drop to 27% of an individual’s pre-retirement income, which would be a significant drop from the typical 56% standard that has been applied over the years.
What can you do to prepare for this social security crisis?
Be less dependent on the program. It will impact people most who are not scheduled to retire for another 20 or 30 years. This is an important point, experts say, because those workers still have the most time to plan for the loss of social security safety net. They encourage people to use tax-sheltered retirement accounts like workplace 401K plans and Individual Retirement Accounts.
Taking as little debt into retirement as possible is also a good proactive measure that can work.