Now that a new deal to keep the government open has been reached talks about Social Security checks being delayed can stop. At least for a couple months until Congress does it again. But there’s a more important conversation taking shape about the future of Social Security — as benefits are expected to rise in 2022 with a doomsday clock ticking simultaneously on it.
The future of Social Security is in serious doubt as the trust funds that support it are projected to be depleted by 2034. That would mean a significant reduction in Social Security benefits by that time — perhaps by as much as 20-30%.
What needs to be done to ‘save’ Social Security?
The Center for Retirement Research at Boston College says it needs to address the program’s 75 year deficit. That means modifying benefits, but that is where debate gets political.
Some of the options gaining attention include increasing the taxes on benefits, increasing payroll taxes, or raising the full-retirement age.
But how realistic are any of these options?
The simplest option would be to increase what’s being paid in by the largest group of people. “The cumulative effect of 176 million workers paying a tiny bit more would have a big impact,” Martha Sheddon, president of the National Association of Registered Social Security Analysts said.
Another option would be eliminating the cap on payroll taxes. For example, payroll taxes only apply on wages up to $142,800. Ending the cap could be the easiest way to generate more revenue for Social Security.
Why are Social Security checks going to increase if there’s a long-term shortfall?
The two mechanisms responsible for increasing annual benefits and sustaining Social Security in the long-term are not the same.
Short-term increases like the Cost of Living Adjustment expected to be 6% in 2022 is made based on inflation rates from the year before. In this case that will likely mean $100 more per beneficiary in 2022 for seniors.
However, the long-term functionality of the plan is based on broader goals laid out by Congress. If Congress wants to act and create a more sustainable version of Social Security then it will have to come up with a plan to do that. If Social Security is going to be modified — it will be on House members to come up with the framework.
Until that happens — the program will continue operating the way it has for the last several decades — until it hits a wall in 2034.