Gen Xers Be Warned – Social Security Running Out of Funds Sooner Than Expected – Generation X will likely always be remembered for its angst, but perhaps that is for good reason. Just as the middle generation which is wedged between Boomers and Millennials begins to reach the age of retirement, there won’t be enough money to fully fund Social Security.
Social Security Is In Trouble
The Congressional Budget Office (CBO) warned this week that funds are set to start facing a shortfall in 2032, a year earlier than previously expected.
“The Social Security solvency date — the exhaustion date for the trust fund — is now within the budget window,” CBO Director Phillip Swagel told reporters this week. He warned that if the funds become insolvent, and without changes to current laws, beneficiaries would likely see upwards of a 20 percent reduction in benefits.
What is especially alarming about this prediction is that it was just in December that the CBO announced that the reduction could begin in 2033. However, the large cost-of-living adjustment (COLA) announced last year changed the projection. Last October the Social Security Administration issued an 8.7 percent increase, the largest COLA hike in 40 years due to the country’s out-of-control inflation.
“There was high inflation, and that resulted in a high COLA, and then those benefits affect the solvency of the [Social Security] trust fund,” said Swagel. “On net, it led to a deterioration in the system, and that moves our exhaustion date just forward one year but into the budget window.”
In other words, Generation X’s parents from the silent generation and their Boomer aunts and uncles are getting a Social Security raise now.
The good news – of sorts – is that high inflation could lead to high wage growth, which could ultimately improve the solvency of the Social Security system, which depends on income taxes.
Another silver lining is that the United States population is expected to increase from 336 million in 2023 to 373 million by 2053.
More people working means more taxed income, which translates to more money for social security.
“Less Money” – Not “No Money”
It is also important to note that Social Security won’t go bankrupt, and it will still be around. The issue is that in 2021 Social Security started paying out more in benefits than it collected.
It now has to dip into the $2.9 trillion reserves it holds in two trust funds. This includes the Old Age and Survivors Insurance (OASI) trust, which pays retirement and survivors’ benefits, and its Disability Insurance (DI) trust. By 2033 the OASI trust is expected to be depleted, and that means the payroll taxes can only fund around 77 percent of scheduled retirement and survivor benefits.
The DI is in better shape and likely won’t be depleted before the end of the century.
Even if things don’t improve, Social Security would still be able to pay roughly 80 percent of total scheduled benefits after 2033 from payroll taxes. That means retirees will still receive monthly benefits, just significantly reduced.
This also isn’t the first time that Social Security has faced a solvency crisis. Back in 1977, when today’s Generation X was lining up to see Star Wars and watching Saturday morning cartoons, Congress was forced to increase the payroll tax rate and the maximum taxable wage base. Congress addressed similar concerns in 1983 by enacting changes that gradually raised the full retirement age from 65 to 67.
It also made some Social Security benefits taxable – a smoke and mirrors tactic that allowed checks to be bigger, which were later taxed as the payments were considered income.
There are a number of proposals that have been considered for how to address the shortfalls. In the meantime, Generation Xers should start saving a bit more and might want to put off retiring for a couple more years.
Then it can be a problem for those entitled Millennials and Generation Z to worry about. Finally, Gen X should be reminded that it still had the best music growing up.
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Author Experience and Expertise: A Senior Editor for 19FortyFive, Peter Suciu is a Michigan-based writer. He has contributed to more than four dozen magazines, newspapers, and websites with over 3,200 published pieces over a twenty-year career in journalism. He regularly writes about military hardware, firearms history, cybersecurity, politics, and international affairs. Peter is also a Contributing Writer for Forbes and Clearance Jobs. You can follow him on Twitter: @PeterSuciu.