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What’s in Store for Social Security?

Although Social Security benefits, whether they are disability or retirement benefits, were never designed to replace income in non-working years, they are a financial lifeline for many Americans. There is no question that they cannot provide enough money for a comfortable retirement. But even the slightest decrease in monthly benefit amounts can send recipients into a monetary tailspin. So, projections that the Social Security trust funds will be depleted in the coming decades will have an effect on Americans that ranges from alarming to disastrous.

In 2019, the Social Security Administration’s Trustees Report estimated that the program’s funds will be depleted by 2035 (or earlier) based on how it operates currently. Should this event come to pass—and without Congressional intervention, it will—the trust funds will no longer have any reserves to pay out benefits in time of financial difficulty and will only be able to pay out what they collect on an annual basis in payroll taxes.

How did we get in this situation? The baby boomer generation was numerically substantial, and the younger generations of workers coming behind them make up a smaller percentage of the workforce than the boomers did, and the jobs they have do not pay as much when adjusted for inflation, so the taxes collected from current workers are not enough to meet the demand of the Americans retiring.

This dire prediction is not to say that Social Security will go bankrupt or that Americans will no longer receive disability or retirement benefits. What it does mean is that Congress must come up with a solution if it intends to provide full benefits to those who qualify for them. If the resources are depleted in 2035, the Social Security Administration will only be able to pay out benefits at 80% of what beneficiaries truly deserve. By 2093, that number will decrease again to 75%.

Congress has a few options to avoid the above from occurring. They could raise the full retirement age, but that has already been increased steadily from 65 to 67 over the past few years. Or least popular of all, they could raise the FICA taxes that pay for Social Security benefits across the board for all workers. Granted, the number of Social Security Disability Insurance (SSI) claimants has decreased substantially in recent years as the recession dies down, and high-risk physical jobs have been replaced by those that carry less risk of physical injury and harm.

Given these somewhat dire predictions, many wonder what they can do to remain financially solvent and rely less on Social Security for income each month. The best plan of attack is to boost your savings as much as possible. If your employer matches contributions to your 401(k), contribute a percentage up to the matching threshold; for example, if your employer matches up to 6%, you should contribute 6% of your income to maximize what is essentially free money that your employee will contribute on your behalf. The next best steps to take are to pay down as much debt as you can as quickly as possible and keep your expenditures low.