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Financial Planning
Jun 2022

Social Security: In Trouble or Not?

By Ken Cranstone, CFP®

Every year, the Social Security and Medicare Boards of Trustees publish a report outlining the current health of the Social Security program. In most years, we are quickly greeted by headlines saying that the Social Security Trust fund is going to be depleted by the mid-2030s. Frankly, with no other context on the matter, it is logical that some people assume the entire Social Security system will come to a grinding halt in a little over a decade. In reality, your benefits aren’t going anywhere anytime soon.

How Social Security is Financed

Social Security benefits are paid from the Old-Age and Survivors Insurance (OASI) Trust Fund. This trust collects tax revenues from wage earner’s paychecks, and pays out benefits to social security recipients. Given population demographics, there was a time when more money was going into the OASI Trust Fund faster than it was going out. There were more workers, and fewer social security recipients. The surplus of funds was retained in the trust, so that as demographics shifted to have fewer workers supporting more retirees, there would be adequate funds to meet obligations even if tax revenues were not sufficient.

The Projected Depletion

The headlines are not lying when they say that the OASI Trust Fund is scheduled to deplete by the mid 2030’s. The 2022 Trustee report confirms that based on the current trajectory the “OASI Trust Fund reserves are projected to become depleted in 2034…” Though, before you stop reading, the sentence continues “…at which time the OASI income would be sufficient to pay 77 percent of OASI scheduled benefits.” So even if no action is taken, current tax revenue would be enough to pay for about 3/4’s of your current benefit amounts through their modeling time horizon, which currently extends to 2096.

Future Changes for Social Security

Granted, with how crucial benefit payments are to the financial security of retirees, a 23% drop in benefits is significant, and should not be ignored. Thankfully, those working with the Social Security Administration have outlined a number of potential changes that can be adopted to avoid reduced benefits altogether. The potential changes run the gambit such as reducing annual cost-of-living adjustments, increasing workers’ full retirement ages, and bumping up the social security wage tax. If you’re interested in learning more, you can view the full list here. These measures aren’t draconian either, especially if done in tandem and implemented while we still have a lot of runway between now and 2034.

So while headlines may spell doom and gloom, know that a solvable problem is being sensationalized. Your benefits won’t be disappearing any time soon, and incremental changes can help the strong social security system thrive for decades to come.

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