As a twenty-something that keeps paying taxes into the social security system, I become anxious at the reports of social security’s impending bankruptcy. Reports often indicate that the future of social security is dismal at best. But could this 77-year old program really be going bankrupt?
The Current State of Social Security
The government reported in 2012 that social security’s trust fund would be depleted by 2033, three years earlier than predicted the previous year. While this doesn’t mean that there will be no money left, it does mean that at this point, there won’t be enough money to cover all of the benefits promised to current taxpayers. Essentially, unless something is done to fix the program soon, Congress will either need to increase taxes or reduce benefits to keep social security from really going bankrupt.
A combination of aging baby boomers and reduced Social Security payroll taxes have contributed to social security’s dwindling funds.
Can They Fix Social Security?
At this point, it’s unclear what the future of social security will be. While it has been discussed heavily, a permanent solution has yet to present itself.
Several proposals have been discussed, including:
- Raising the retirement age. Retirement age was 65 for many years, and was recently raised to 67 for people born after 1959. This proposal would increase retirement age even further.
- Reduce benefits for higher earners. By reducing social security benefits for higher-income earners who are more capable of saving for retirement, it leaves more funds available for lower-income earners.
- Increase the Payroll Tax Cap. Currently, the social security payroll tax only applies to earning up to a specific point. By raising the tax cap (which would only impact the top 6% of earners), the extra funds would help fill an estimated 36 percent of the gap in social security funds.
Social Security and Your Retirement
At my age, I still have about another 30 to 40 years left until I retire, meaning I will most definitely not be receiving my current full expected benefits from social security.
Many Americans have believed that social security would be able to cover a large portion, if not all, of their retirement expenses. Frankly, this is a huge mistake. If the current economy has taught us any lesson it is that we need to plan for a rainy day and we can only depend on ourselves to keep us afloat.
Social security may or may not get fixed, but I won’t be the 60-year-old hoping and praying that someone will come up with a solution before I retire. The future of retirement is clear: save and diversify now.