With our population getting older and sicker, many are wondering what might become of Social Security in a few years. What will our Social Security program look like for future generations?
What Is Social Security?
The United States’ Social Security program provides monetary assistance to people with inadequate income or no income. Since its introduction in 1935, Social Security has endeavored to protect and help those over the age of 65 by providing continuous income throughout retirement. Around that time, average life expectancy was around 62; they decided to allow access to it at the age of 65. So where does the funding for Social Security come from? Well, it is primarily funded by payroll taxes assessed on wages. Everyone who earns a paycheck has 6.2% of their wages automatically deducted by the federal government and added to the Social Security program. Social Security helps more people – around 166 million – than any other federal program.
The program facing Social Security now is that our cash expenses have exceeded its projected cash flow, which is depleting reserves at an alarming rate. According to the trustees’ intermediate forecast by 2034, we will have completely depleted our Social Security savings. After the depletion of our reserves, we will be relying on tax revenue to pay three-fourths of Social Security benefits. With more people aging out of the workforce each day and less people being born to enter it, the depletion of funds seems imminent.
Fixing Depleted Social Security Funds
There are a few potential ways to fix the Social Security issue – one being an increase in the taxes that fund the program. An increase to 7.2% over 20 years will reduce the funding shortage by 52%. Another suggestion is to increase or eliminate the tax cap, which only currently covers around 83% of all earnings. The tax cap does not include people who earn more than $117,000 and who don’t pay Social Security payroll taxes. Finally, another idea would be to increase the retirement age. But by raising the retirement age to 68, it would reduce expenses by about 7%. It will also decrease Social Security’s financial shortfall by 16%.
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