No one thought much about it when President Ronald Reagan began to make changes to Social Security in 1983. How old were you? Maybe in your 20’s or 30’s? We were all interested in other things at that point in our lives.
Today, April 20, is the 40th anniversary of the 1983 Social Security Amendments.
And, we’re still facing the same problems we did then. Will Social Security run out of money someday?
The payouts from Social Security have exceeded the revenue taken in every year since 2010. Social Security goes into insolvency in the year 2033 if there is no recession and no changes are made. If we have a recession, Social Security could become insolvent sooner depending on the severity and length of the recession.
More recently, Inflation and the pandemic are both having a negative impact on Social Security benefits. Inflation is eroding the value of benefits, while the pandemic has caused a decline in the number of workers paying into the system. Rising interest rates are causing issues for our national debt. As a result, Social Security is facing a financial shortfall that could lead to benefit cuts in the future.
What can we do?
There are a number of things that can be done to make sure that everyone gets the benefits they deserve.
Raise the payroll tax cap. Currently, the payroll tax only applies to the first $160,200 of earnings (raised for 2023). Raising the cap would increase revenue for Social Security without raising taxes on most workers.
Raise the payroll tax by 1-2 percent. No one wants to pay more but it may be inevitable.
Another option is to reduce benefits. This could be done by reducing the amount of benefits that people receive, or by increasing the age at which people are eligible for benefits. The age could move to 68-70 and probably should with increasing longevity.
Education. Many people do not understand how Social Security works, and this can lead to them making poor decisions about their retirement years and investments. We are always producing Social Security reports to help understand the myriad of claiming options.
Save more personally. Very few save enough. Social Security is not enough to support most people in retirement. Although this doesn’t fix Social Security it lessens our dependence on the system.
Any solution to the Social Security problem will probably need to be a combination of these and other reforms.
I’m sure there will be lots of surprises ahead for future and current recipients of Social Security.
