It is a question that has been debated for years – will the Social Security Administration (SSA) run out of money? The question could be asked another way, as in HOW could the SSA run out of money? It is part of the federal government after all, and Uncle Sam can’t run out of money, right?
Well, the question may be direct, but the answer isn’t.
In August, it was announced that the Treasury Department warned that the Social Security fund, the one most Americans pay into and in turn rely on for their retirement, would run out of money in 12 years – a year sooner than expected. The circumstances, which have been exacerbated by the Covid-19 pandemic, threaten to shrink retirement payments while increasing healthcare costs for Americans in old age sooner than expected.
That last part explains the facts. Technically, as long as workers and employers pay payroll taxes, Social Security will not run out of money. As AARP.com reported, “It’s a pay-as-you-go system: Revenue coming in from FICA (Federal Insurance Contributions Act) and SECA (Self-Employed Contributions Act) taxes largely cover the benefits going out.”
However, Social Security does face funding challenges. While for decades it actually collected more than it paid out, building a surplus that at even stood at $2.9 trillion at the end of last year – the surplus needs to be put in context. For one it is just 10 percent of the total national debt, which is now at $28.8 trillion.
The bigger issue is that the system is starting to pay more out more than it takes in, largely because the number of retirees is increasing faster than the working population, and retirees are living longer.
When President Franklin D. Roosevelt signed the Social Security Act into law in 1935, it was meant to provide for the retirement of elderly Americans. Life expectancy at birth in 1930 was 58 for men and 62 for women, yet as noted the age of retirement was set at 65. The government was essentially counting on the fact that there wouldn’t be as many Americans receiving payments for years or decades to come.
Without changes in how Social Security is financed, the surplus could run out in 2034. Yet, even then it won’t be broke. It will still collect tax revenue and payout benefits, but it will only bring in enough to pay 78 percent of scheduled benefits.
“Many people hear the words insolvent or bankrupt and they automatically assume the program is just going to disappear,” Shai Akabas, director of economic policy at the Bipartisan Policy Center, told CNBC over the summer. “In reality, Social Security has been around for well over 80 years now and it has more support than just about any other government function. It is highly unlikely that it is going to disappear anytime soon.”
Even if benefits are cut, it would be by less than 25 percent. That would still be bad news to those who are counting on a cushy retirement, but it should at least put minds at ease that money will be paid to retirees. Something is always better than nothing.
Congress needs to take steps to shore up Social Security’s finances – and it wouldn’t be the first time. Lawmakers had to step in back in 1983, the last time the program nearly depleted its reserves. It included raising the full retirement age, increasing the payroll tax rate and introducing an income tax on benefits. All of those things were hard pills to swallow – especially the increase in the tax rate, which meant workers paid more for the hope that they’d see it on the other end.
It is see why many would prefer smaller benefits down the line, which would still be better than nothing. It could be seen as a fair tradeoff of further pushing back the age of retirement, increased payroll taxes and further tax on the benefits.
Peter Suciu is a Michigan-based writer who has contributed to more than four dozen magazines, newspapers and websites. He regularly writes about military small arms, and is the author of several books on military headgear including A Gallery of Military Headdress, which is available on Amazon.com.
