The Social Security Administration now projects that the money used to provide social security benefits will run out one year earlier than expected, in 2035. The extra year is of little consolation to the majority of Americans. Will Congress step in to help?
Even if a bill introduced in the House of Representatives is passed and becomes law, Smart Asset says more is needed to keep the program’s benefits at their current level. These are three actions you can do now to prepare for 2035, should the government fail to meet the challenge. As you prepare for retirement, think about consulting a financial advisor.
Social Security Payments Running Out Soon!
The Social Security Board of trustees’ 2022 annual report (via AOL) predicts that Social Security’s financial reserves will be depleted entirely by 2034, which is one year sooner than their 2020 report expected. After that, annual taxes are anticipated to only pay for around 78% of the benefits.
Longer life expectancies, a decline in the number of working-age people, and an increase in the number of retirees are all contributing factors to the issue. More than 78 million Americans will be 65 or older by 2035, up from around 56 million. As a result, fewer individuals will be paying into the Social Security system, while more people will be drawing money from it.
The initiative will only run out of funding, though. It is anticipated that payroll taxes will pay around 78% of the benefits. But, if the budget gap is not closed, seniors may receive smaller Social Security benefits or employees may be required to contribute more to the program. Experts predict that if no adjustments are made, Social Security may eventually resemble this.
What the Congress is Doing About It
Social Security 2100: A Sacred Trust, a bill that aims to strengthen the trust funds by raising taxes on high earners and covers more than half the estimated shortfall in the Social Security Trust Funds, was introduced by Rep. John B. Larson (D-Conn.), chairman of the House Ways and Means Social Security Subcommittee. Moreover, it broadens the advantages in the following four ways:
- offers a boost for all beneficiaries (getting retirement, disability, or dependent benefits) equal to an average of 2% of payments to make up for insufficient cost-of-living adjustments since 1983;
- adopts a “CPI-E formula,” which enhances the yearly cost-of-living adjustment calculation to better represent the expenditures faced by seniors;
- raises the minimum benefit to a level that is 25% over the poverty line and connects it to salary levels to prevent it from falling behind;
- repeals the government pension offset and windfall elimination clause, which now cut many government employees’ Social Security payments.
Several interest groups have reacted negatively. The Committee denounced Larson’s proposal for a Responsible Budget as a step backwards. The 2019 Social Security 2100 Act, which we have commended as a sensible solution to the looming budget, is significantly downgraded by the law. In contrast to Social Security 2100 Act, which would have brought the program back to sustainable solvency, A Sacred Trust would only theoretically cover half the solvency gap and, if gimmicks are eliminated, would actually deteriorate solvency.