Social Security is on the brink of having its funds depleted by 2034 unless Congress can fix the problem.
“This isn’t a problem for future generations. It’s a problem for us,” said The Seniors Center President Dan Perrin. “Social Security is already spending its surplus and if Congress refuses to act, there won’t be enough money to keep benefits at their current level.”
It will take just an about 16 years from 2018 before all the program’s reserves is used up. Social Security will be paying out more benefits to retirees than the revenue it can generate from taxes and other reform programs and, the program’s estimated $2.9 trillion reserve will be completely gone too, unless Congress takes action to find a new source for revenue. While Social Security will not go bankrupt as long as funds continue to flow into it, by 2034, Social Security will no longer have the income to support current benefits
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Social Security’s funding resources includes 12.4% of payroll tax from earned income, interest income, and taxation of benefits. However, once its total funds have been used up, its schedule of payouts can’t be sustained. As a result, it might be necessary to implement a payout cut of up to 21 % to support it until 2092. This means many retirees who depend or will depend on Social Security will suffer from this setback.
Fixing the Social Security problem will ultimately require a bipartisan approach. Currently, Democrats and Republicans have conflicting ideas about how to solve the financial issues around Social Security.
Democrats are in favor of raising the revenue or removing the cap for the payroll tax.
The cap is currently at $128,400, meaning most US workers are paying their taxes up to the last cent of their earnings. Meanwhile, earnings exceeding the cap are exempted from taxes, which means high earners and the rich pay a lower percentage of their income into Social Security than the average citizen. All in all, a total of $1.2 trillion in earnings were not taxed in 2016, because they came from the earned income of the wealthy. Subsequently, Democrats are considering raising or even eliminating the cap so high earners and the rich pay more taxes. This would bring in higher revenues into Social Security.
Republicans are in favor of increasing the retirement age.
This means future retirees only receive full retirement benefits from Social Security when you reach this age. Full retirement age has traditionally been 65 with early retirement benefits available for those who turn 62. However, claiming benefits at 62 would equal an 80% reduction of the full benefit amount expected. The full retirement age for those who turn 62 in 2018 is 66 years and four months, while those who will turn 62 in 2019 will be 66 years and six months. The full retirement age will increase each year by two months until the full retirement age reaches 67. At present, life-expectancy has been increasing at a faster rate than compared to full retirement age. Consequently, if recipients can wait longer to receive their full payout, it will help reduce expenses on a long-term basis. Another option is for retirees to accept a higher reduction rate from their benefits if they claim earlier than their full retirement age. This option can likewise reduce expenditures significantly for lifetime payouts.
If both Democrats and Republicans apply these core ideas and work together to create a reform program for Social Security, there will still be hope for all retirees in the future.
The Social Security program helps more than 22 million people, saving them from financial decline and keeping them out of poverty. This number includes about 15.1 million seniors who depend on their Social Security checks every month to make ends meet. The last time reforms were put into action was back in 1983 when Congress passed legislation on the retirement age. For the first time in 36 years, Congress paid attention to Social Security once more as the program faced a similar issue: more payouts than collected revenue.
It is once more time for Americans to urge Congress to make bi-partisan reforms on Social Security. This is advocated by the Senior Center in Washington, D.C., a senior citizen-led grassroots movement with more than 450,000 members. Currently, they are all working together to inform not only legislators but the public about issues and concerns that affect the future of retirees.
Today, the Senior Center is rallying for Congress to commit to giving back the funds to Social Security, which have been borrowed to invest in government bonds, costly projects, and other political agendas. This will ensure that benefits are maintained through 2034 without fear of further cuts due to an unbalanced budget.
Tax reforms between 1983 and now would have helped maintain balance in the financial status of Social Security. Unfortunately, the amendments made in 1983 to help save Social Security were made from necessity rather than well-grounded assessment. Since then, subsequent administrations did not make any attempt to continue addressing impending losses in funds in coming years. They largely ignored similar errors lawmakers made after 1970 when they were fully aware of the program’s continuous decline in funds. Instead, they kept the issues surrounding Social Security take a back seat. It was only in 1983 that Congress finally faced the impasse because they were left with no choice. Now, after 36 years, lawmakers are in the same boat once more. They once again have no choice but to resolve the issue or risk retirees in the future not receiving any benefits.
The Senior Center believes that fixing Social Security requires a bipartisan approach that can lead to a solution.
However, time is against everyone who wants to solve the problem. The issues surrounding Social Security today are the same ones faced 30 years ago. Only now, a higher number of retirees will be collecting more benefits due to longer life spans while a decrease in the birth rate means fewer workers supporting these benefits.
The same possible solutions were discussed back then as well like raising taxes, cutting retirement benefits, and increasing the full retirement age, among others. However, acting upon these solutions was not made a priority. If they had been properly addressed, the problems facing Social Security wouldn’t reach its toxic level of now. Extra funds could have been made available if tax increases and cuts in benefits had taken effect years ago. Now, American workers and retirees are trapped in a tight situation that might not be so easy to fix if Congress continues putting off addressing these issues and instead, put their political self-interests first.
Nonetheless, the Social Security Administration (SSA) continues to work on improvements to the Social Security program. They recently announced changes that retirees can expect to unfold as soon as next year. These include the following:
- 8% increase in payments: Social Security beneficiaries will receive an additional 2.8% cost-of-living adjustment (COLA).
- An increase of up to $132,900 as maximum taxable earnings: the required 6.2% Social Security tax will remain as is, but the tax cap will increase to $132,900.
- Full retirement age will continue to increase: the full retirement age is set to increase by two months until it reaches 67. Delaying the collection of your benefits until you reach 70 can give you a 76% higher annual payout
- Earning limits will increase: in 2019, $1 will be deducted for every $2 that exceeds the limit and for every $3 earned over the 2019 limit; your benefit will be reduced by $1. This will take effect months prior to reaching your full retirement age. No benefits will be withheld one you hit your full retirement age even if you continue to work.
- Social Security disability thresholds will increase: Beneficiaries who are legally blind can receive a maximum of $2,040, an increase of $70 a month after 2018 and those who are non-blind; the maximum benefit is $40 a month to $1,220.
- COLA notice can be viewed online: Social Security recipients can view their COLA notice online through their mySocialSecurity account aside from receiving their notices by mail with the option to receive them online.
Finding solutions to fix Social Security issues can help alleviate the impact of poverty that is a real threat to senior citizens and retirees in the future. The long-term issues surrounding Social Security involve demographic changes and lawmakers not reaching an agreement on how to resolve its issues. As more baby boomers retire, subsequent generations cannot keep up with the job of filling the vacancy they left behind. As a result, the worker to beneficiary ratio is declining.
Both Democrats and Republicans can’t seem to find a middle ground since they can’t see any incentive in working together. Fortunately, the SSA continues to work despite these issues, but their efforts may soon come to an end if tangible solutions are not provided by Congress soon. Workers who are paying their income taxes now might not get any benefits in the future if problems and delays continue to be disregarded.
Social Security is the lifeline of most retirees and the disabled. Sadly, if retirees can’t count on Social Security in the future, there is guaranteed to be a rise in poverty among American senior citizens as well as related complications with their healthcare.