The belief that Social Security is rapidly running out of money is one of the most popular misconceptions about the program. While Social Security’s trust funds may be depleted within a decade and a half, it will also have a large amount of money coming in.
The reason? Social Security’s primary source of revenue is payroll taxes, which none of us really enjoy paying. Now that the revenue stream will be lost once baby boomers start retiring in droves, while younger employees will start to replace them, it may not happen fast enough.
Social Security will continue to pay benefits as long as it continues to collect payroll taxes. However, that does not imply there will not be significant changes in the manner in which payments are made.
It isn’t the worst-case scenario
When it comes to Social Security, most of us are naturally gloomy because the media frequently emphasizes the fact that the Social Security program is facing a significant financial deficit in the years ahead. That’s correct.
However, the organization isn’t in danger of going bankrupt. As a result, today’s employees don’t have to write off the prospect of obtaining retirement funds.
However, without an agreement on raising taxes, they may vary widely. For example, if lawmakers are unable to come up with a solution to boost Social Security income, they may reduce them uniformly across the board.
Social Security benefits are now merely being talked about in terms of a 20% reduction, not the 50% or 60% cuts that were previously proposed. If anything, seniors are anticipating a decrease in their Social Security payments of around 20%. However, because this represents a big loss of income for people who get the majority of their retirement funds from Social Security, it’s something that retirees will need to anticipate and employees will need to plan for.
Meanwhile, lawmakers might have to take some desperate actions to preserve Social Security’s long-term viability. That could imply changing the rules regarding eligibility.
Currently, anybody who was born in 1960 or after is entitled to the full amount of their monthly Social Security payments at age 67. However, lawmakers might need to raise the retirement age back to 68 or 69 in order to relieve some of the strain on Social Security.
There are also payroll taxes, which are necessary to run the program. Higher-income individuals are currently only taxed on a portion of their earnings. If there is a need for money, lawmakers may choose to raise the wage cap so that employees must pay Social Security contributions on all of their income.
Everyone should brace for change
The good news is that the Social Security system is not in danger of vanishing. The unpleasant news, on the other hand, is that substantial modifications to the program may be unavoidable in order to maintain it for years to come. This will be something both current beneficiaries and workers must prepare for. Furthermore, as more changes to Social Security are announced down the road, those who are already in retirement might need to change their expectations accordingly.