SSocial security is in trouble. The program’s trust funds are currently expected to run out of money in 2034, which would reduce the benefits by almost a quarter. As if that weren’t enough, the program’s returns fail to keep up with inflation, which could drain that money even faster. All of this is an important reason to be concerned about the medium and long term future of this essential program.
Despite these very real concerns, there is good reason to believe that the program can continue for the long term. It will be have be different in the future than it is today, but it should still be able to provide something to retirees. For these three reasons, Social Security is not as unreliable as you might think.
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# 1: Even If Trust Funds Drain, Social Security Will Still Pay Something
In addition to trust fund money, Social Security collects tax revenues from most Americans with jobs and retirees whose incomes are high enough to make their benefits taxable. Even if nothing else changes, the tax revenue Social Security collects is enough to pay for a large part of the benefits it expects to pay. According to the 2021 report of the program’s trustees, Social Security expects to be able to pay about 78% of benefits once the trust funds are empty, and about 74% over the long term.
As a result, if your “normal” Social Security benefit is around $ 2,000 per month, you can still expect between $ 1,480 and $ 1,560 per month as the trust funds drain. It’s a painful cut, but it’s still the vast majority of the money you’d expect if the trust funds had stayed healthy.
# 2: lawmakers fixed social security in the past
Social security has experienced crises in the past. For example, in its 1982 report on trustees, Social Security stated that “the AVS Trust Fund would be unable to pay benefits due July 1, 1983”. In January 1983, the bipartisan Greenspan Commission released the report that Congress ultimately used to correct Social Security to its current state.
If history is any guide, it could be 2033 or 2034 (or whenever the trust funds are really about to drain) before Congress does anything about it, but there is chances are it will be corrected again. There are simply too many voters who depend on the program for elected officials to simply let it fail.
N ° 3: Social security remains a popular program
According to a 2020 AARP survey, 96% of Americans rated Social Security as an important program, and about 40% of Americans expect it to be a substantial source of their income. This type of support is what makes Social Security the so-called third rail of American politics. This, more than anything else, should give you confidence that Social Security will continue well beyond the day its trust funds are expected to drain.
Almost ironically, the popularity of the program provides a primary reason why it’s so difficult for lawmakers to fix it before it truly becomes a crisis. After all, any fix would involve some level of tax increase, benefit reduction, and / or change in the program’s investment strategy. Suggesting touches to any of these can easily make politicians easy prey for members of the opposite party.
Social security was never designed to be autonomous. Start preparing now.
Social Security itself recognizes that at best, the program only offers retirees about 40% of their pre-retirement income on average. As a result, people have their entire careers to plan for to bridge any gap between what the program will offer and the retirement they would like to have. Even today, you have over a decade left before the program’s trust funds run out. That’s enough time to put a plan in place to help you close the shortfall.
If you haven’t yet got a plan in place, there’s no better time than now to start. After all, no matter how Social Security is patched up, there’s a good chance you’ll be paying for this patch through a combination of higher taxes, lower benefits, and / or less certainty of those benefits. . The better the rest of your nest egg is prepared before this patch happens, the easier it will be for you to manage this patch no matter what form it takes when it arrives.
So recognize that while Social Security will most likely be there when you need it, it can look a lot different in a decade from what it is today. Start now and you will increase your chances of a comfortable retirement, no matter what the future may bring to Social Security.
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Chuck Saletta has no position in the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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