The Future of Social Security

Many people are worried about the future of Social Security, but is there a cause for concern?

Due to the Social Security changes made in 1983, benefits are expected to last until 2037, which is when the trust fund reserves are supposed to become exhausted. With the reserves dried up, taxes are expected to be able to pay for 76% of scheduled benefits. Congress will need to make some changes to either schedule benefits or revenue sources, in order to make the program sustainable for the future.

Scheduled benefits have always been paid on time from the beginning of the Social Security program and, though the laws may need to change, this will continue. This is so Social Security can provide a basic monthly income after workers have reached retirement age or have become disabled.

The Future of Social Security

History of Social Security

Social Security was created in 1935, and in 1939 it extended benefits to dependents and survivors of those who were already earning Social Security benefits. The regular benefits started in 1940 and the program remained unchanged until the 1950s, when there was legislation passed to increase monthly benefits for inflation and to expand Social Security to disabled workers. The 1970s was when the program started to feel its first financial strains and several changes were made in 1983, which included raising the full retirement age from 65 to 67.

Current State of Social Security

Due to changing demographics and more people retiring in the baby boomer generation, combined with longer life spans and reduced birth rates, the funds are depleting. Since Social Security is designed as a pay-as-you-go program, there needs to be a new generation of workers that pays taxes for the Social Security benefits of those that are currently retired. Since this number has fallen over the last few decades, this does put the program in jeopardy.

In 2000, there were four workers for every one that received benefits, and in 2017, there were only 2.9 workers. Projections indicate that by 2035, when benefits will be even more exhausted, there will only be 2.2 workers per retiree.

Social Security Annual Reports

Starting in 1941, the Social Security Board of Trustees has presented a report on the financial status of the program each year. This includes the operations of the trust funds and the expected operations for the next five years. This helps Congress and gives an early warning so that there can be changes enacted.

Many agree that the advanced warning allows changes to be made gradually, and is still better than many other countries. The changes in the 1983 Amendments show that they can be made and rolled out in an effective manner. The approach of planning for the future allows those who will be affected to make advanced plans, so they can be in charge of their own retirement.

Social Security Reserves

Looking at Solvency of the Program

One important thing to keep in mind when looking at the Social Security program is its solvency. This is defined as the ability of the Social Security trust funds to pay the full benefits in the law in a timely manner at any point in time. There are two different trust funds for Social Security: one for Old Age and Survivors Insurance benefits and one for Disability Insurance benefits. These two trust funds are unique from other government programs, because there is no way to borrow money for these trust funds in order to pay the benefits. The trust funds reached the brink of exhaustion before changes were made in 1983, so this isn’t something new.

Many people will think of the two trust funds as one, but they are actually two separate funds. The trust fund for disability benefits is supposed to be exhausted sooner and could run out by 2020.

What Could the Future Hold?

The program will never be broke, because as long as there are workers in the workforce, there will be money to go toward Social Security. If nothing changes with the program, it’s expected that it will only be able to pay for 75% of benefits. It’s wise that seniors make other plans and take retirement into their own hands, and don’t rely on Social Security to fund their retirement. While Social Security will still pay some benefits, it may not be as much money as one is expecting.

There isn’t one clear solution to deal with the problem, but there have been a number of proposals that have been suggested for improving it, and it will be up to Congress to decide on the program's future. Past legislation shows that the change will likely be a combination of reduction in benefits, along with an increase in payroll taxes.