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If you read headlines saying Social Security isn’t going bankrupt or insolvent, they are right, but that doesn’t mean there is nothing to be concerned about.
Social Security is headed toward depleting the retirement benefit trust, but as long has there is incoming tax revenue, reduced benefits will be paid.
However, many retirees with feel the impact of an immediate 19-20% reduction in benefits. That will put some into poverty.
According to the latest projections from the Social Security Trustees Report, upon depletion of the combined OASI and DI trust funds (expected around 2034), benefits would initially be reduced to about 81% of scheduled levels, resulting in a roughly 19% cut. (estimated % vary and can change).
However, reduction would not remain static; the payable percentage is projected to decline gradually over subsequent decades due to ongoing demographic shifts, such as an increasing ratio of retirees to workers and scheduled benefits growing faster than revenue from payroll taxes.
These changes would occur incrementally each year as the actuarial imbalance worsens, rather than as a one-time event.
Unfortunately, as treasury bonds assigned to the Trust are redeemed to pay current benefits, we are demonstrating the need for a trust reserve and assuring it is maintained.
As the bonds are being redeemed and not replaced, interest paid to the trust also declines. If benefits are reduced, income taxes paid on SS benefits which go into the Social Security and Medicare trusts are also reduced.
It’s all connected and not recognizing that is our big mistake Even while all this is happening, many people are seeking higher benefits and lower taxes. Go figure😱
Congress must act to adjust taxes, benefits, or other factors to prevent or mitigate reductions.
Social Security is the least of our troubles. At least it is a tax that mostly pays for the benefit it is for. Even when the “trust fund” is off the books in a few years, SS will be running a deficit of only about 20% and will be less than 10% of our total budget deficit, which will be something like 2.5 trillion per year at that point. We’ll be spending more on interest payments on debt that had nothing to do with social security, than on SS payments themselves.
Objectively, the slow burn of the SS shortfall is the least destructive fiscal fire we have. But, rest assured, at the last minute, congress will come together and come up with the least equitable solution possible and “solve” the shortfall. Some of us (likely most on this forum) will get substantially reduced benefits and/or higher taxes, and others won’t see any impact at all.
86 million eligible voters did not vote in the 2024 election. I assume they do not care about their own self-interest or are so fed up that they don’t think it matters who wins elections. They don’t care that a convicted felon became president or that our legislature seems unable to help Americans who need help. Why does anyone think they will care more about Social Security than the myriad other issues that directly affect their desperate lives?
Howard, the red arrows aren’t necessarily because people disagree. They are because we don’t do politics here. So rather than debate how we got into a particular mess, we suggest ways to deal with it in our own lives.
Becoming mired in a political argument will destroy HumbleDollar.
You might get a kick out of quinnscommentary.net
It’s Dick Quinn unleashed.
Trying not to be political, but I think we have larger and more pressing problems facing our country as of this moment that need addressing than the SSA deficits. If we can’t take care of our current challenges, I’m not sure how well we can orchestrate a successful landing with Soc Sec. Many of our trading partners & allies that we do business with are holding a significant amount of treasuries and settle many of their financial transactions with dollars. If those two start unraveling, Soc Sec deficit may be the least of our problems.