What Will Social Security Look Like for Future Generations?
With our population getting older, some wonder what might be the outcome of Social Security in a few years. Lead by baby boomers, our economy has thrived off the hard work of past generations. With the increasingly aging population and the rapidly decreasing funds, people may not be able to retire in peace. So what will our Social Security look like for future generations? Today, we will discuss the condition of Social Security and what we can expect from it in a few years.
What Is Social Security?
Social Security has been around for a long time, providing monetary assistance to people with an inadequate income or no income. Since its introduction in 1935, Social Security was to protect and help those over the age of 65 by providing continuous income. Around that time, the 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 in the United States. So for instance, right now employer pays 6.2% of income and the employee chips in another 6.2%. Social Security helps more people – around 166 million – than any other federal program.
The big problem with Social Security is that our cash expenses have exceeded its projected cash flow, making our reserves slowly depleted. 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 into social security from our retired workforce than actually working, 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 the Social Security payroll taxes. Finally, another idea would be to increase the retirement age, which no one really wants. But by raising the retirement age to 68 from 2023 and 2028, it would reduce benefits by about 7%. It will also decrease Social Security’s financial shortfall by 16%.
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