Social Security funds are expected to run dry by 2035.
Now, many Americans are left wondering what it means for them.
What happens when Social Security runs out?
Before Social Security funds run out, there will be a reduction of benefits. If in 2035 the only funds available the administration would still be able to pay around 75% of promised benefits. While 25% is still a sizable reduction, it will provide more assistance than if the program ceased to exist. Congress may vote to increase the Social Security taxes charged on employee wages in order to avoid benefit reduction.
The employee portion of the tax would need to increase from 6.2% to 7.55%. However, if the increase were put in place immediately, which in turn would mean $675 in annual taxes for an employee earning over $50,000.
If the increase put in place is after 2035, taxes would need to increase to 8.025%, representing an annual tax increase of $912 for an employee making $50,000.
With no intervention, benefits are expected to drop by 80%. The accelerated use of the funds could be partly Covid-related. Nearly 14.6million people are currently receiving some form of unemployment assistance, and 5.4% of the population is still unemployed.
It still isn’t clear when or how Social Security intervention will take place to keep the program going. However, for many Americans it is urgent as Social Security benefits make up 33% of the average retiree’s income.