It’s probably safe to say no generation in the past several decades has reached adulthood without uttering the famous phrase:
Well, Social Security isn’t going to be there for ME when I retire.
We’ve all heard it. And most of us have probably said it a time or two.
After the most recent Social Security Board of Trustees’ report, it’s no question Social Security is headed for tough times in the next several years.
Without any changes, benefits could take as much as a 23% cut after 2034. This is primarily due to a dramatic shift in demographics. By 2034, the Trust Fund will experience more pressure than ever before.
With the retirement of the Baby Boomers, Social Security is paying benefits to the largest retired generation to date. Though there are a variety of other factors at play, simply put, there aren’t enough working Americans contributing to the Trust Fund to pay the scheduled benefits of retiring Boomers.
But does that mean Social Security is going bankrupt? Will there really be a time when Social Security won’t be there for retirees?
Today’s article over at The Motley Fool addresses exactly those questions.
The belief that Social Security is going bankrupt is not completely accurate — and probably the oldest and most persistent myth about the Social Security program.
Make no mistake about the future health of the Trust Fund: we are in for some trouble if we don’t act fast to restore solvency to this program. That trouble will present itself in the form of severe cuts to benefits across the board.
But insolvency isn’t bankruptcy. When we talk about insolvency, we are talking about the future inability of the Trust Fund to make the full scheduled benefits of all retirees. The year 2034 simply marks the point when benefits will have to be significantly reduced in order to make payments to all beneficiaries.
As for bankruptcy, as long as there are Americans earning income and a payroll tax collected on that income, Social Security isn’t going bankrupt.
The FICA tax collected on every working American’s paycheck is a dedicated tax that strictly provides revenue for Social Security. While we will soon reach a point where spending exceeds revenue and benefits must be reduced to sustain the program, there will still be billions of dollars in taxes collected to pay those benefits.
So the question shouldn’t be “will Social Security be there for me when I retire?” Yes. If there is a payroll tax, there will be Social Security.
Rather, the question we should be asking is whether the benefits that ARE going to be there for us will be enough?
Will we receive retirement benefits that actually allow us to retire?
Will the benefit I receive when I retire be subject to reduction and cuts down the road?
Until Congress makes moves to reform Social Security, extend solvency, and guarantee the benefits of America’s seniors, the answers to those questions remain to be seen.
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