Can Social Security Be Saved? Yes, With a Few Changes

 Nearly every retiree, and many younger adults, have heard the alarming news that the Social Security Trust Fund will run out of money in another ten years or so, although the exact date changes regularly.  Some people believe this means that Social Security payments will completely end at that time.  That is NOT true.  However, if the government does not take steps to strengthen Social Security, it is true that benefits could be automatically cut by 20% once the trust fund is fully depleted.  That would be devastating to many people, but not quite as bad as eliminating Social Security completely.  The sad fact is that this problem could be entirely avoided, if Congress takes a few steps now to assure that the Social Security Trust fund has enough money to continue to operate well into the future.

According to official reports in mid-2022, below are the current estimates on how long full benefits can be paid out, even if nothing is done is improve the financial strength of these important programs:

"The Social Security trust fund most Americans rely on for their retirement will be able to continue to pay out full benefits on a timely basis until 2034, one year later than the Treasury Department estimated last year, according to an updated report published by the government.

The improved analysis, signed by Treasury Secretary Janet Yellen and Labor Secretary Marty Walsh, projects that the government’s disability insurance program will be able to pay full benefits over the next 75 years, the first time Social Security officials have issued such a rosy outlook since their 1983 report.  Last year’s report estimated the Disability Insurance Trust Fund would be depleted in 2057. 

Medicare Part A will remain fully financed through 2028, two years later than previously projected, the government said."  

(Source:  https://www.cnbc.com/2022/06/02/social-security-trust-fund-will-be-able-to-pay-benefits-longer-than-expected.html)

What Steps Could Save Social Security Even Longer?

According to AARP, there are a number of actions which Congress could take in order to prevent senior citizens from being forced to take a 20% cut in their Social Security benefits in another few years.  This is a looming problem which can be prevented.  Although there are many possible solutions, below are some which have been suggested by AARP and other advocates for senior citizens.  

Raise the Cap on the amount of wages subject to Social Security withholding - Currently, someone who has a salary of $1,000,000 pays the same Social Security withholding as someone with an income of $160,200 (the current 2023 cap).  Increasing this cap to an even higher level would increase the amount of money going into the Social Security Fund.

Keep the Cap, create a "donut hole," and resume withholding at a higher income threshold - For example, keep the current $160,200 cap, but resume withholding on higher earners, such as those earning over $400,000 - $500,000 a year in wages, or some other number to be determined by Congress.

Increase the payroll tax rates - The current Social Security withholding tax is 12.4 percent.  It could be raised to 14.4 percent, but this would affect the lowest wage earners the most.  Another choice would be to raise the payroll tax rates on incomes over $100,000 or some other designated amount.

Increase the number of people paying into the Social Security system - Many state and local employees are not covered by Social Security.  They are only covered by public pensions.  In fact, in about half of the states in the U.S., people receiving a public pension are either denied their Social Security benefits, or they are forced to accept substantially lower Social Security payments, even on income they earned in addition to their public service job.  The rules that deny them their benefits are the WEP and the GPO.  These rules could be eliminated by Congress.  Millions of workers would benefit by being included in both the Social Security system as well as their private pension, and this would mean more people paying into the program.  Of course, this would also mean more people receiving the benefits they earned in the future.

Broaden the definition of income - Some types of income are not covered by Social Security payroll taxes.  This includes investment income.  As a result, many people do not pay withholding on their income, even if they are high earners.  If everyone was expected to pay into the Social Security Trust Fund, regardless of the source of their income, this would help protect the integrity of the program.

Congress could add money to the Social Security trust fund from other sources - Because making significant cuts to Social Security would throw millions of Americans into poverty and cost the government even more money by forcing it to provide other types of aid, it would make sense for the government to supplement the Social Security Trust Fund with money from the general fund or other sources of extra income.  It actually hurts the government more when fewer people are paying into the Social Security Trust Fund, and then many of them end up collecting other types of benefits such as SNAP (food stamps), housing assistance, and SSI (Supplemental Assistance Income).  It would be much better if Congress fixes Social Security so that millions of people are able to survive on their earned benefits, without these other types of assistance.

Reduce Social Security benefits for people who also have a high income or a lot of assets - This would allow the people with the lowest income and fewest assets to continue to get their full benefits, and only those who are financially secure with other sources of retirement income would have their benefits cut.

Cut the projected benefits for new beneficiaries by 3 to 5 percent -  This would mean that current beneficiaries could continue to receive their promised benefits and new beneficiaries would only receive slightly less when they reach retirement age. This would also allow younger adults time to save more money towards retirement, to make up for the deficit.

Change the way benefits are calculated so new beneficiaries receive a lower payout - This is similar to the above suggestion. Currently the Social Security Administration calculates your benefits based on your 35 highest years of salary.  If they changed that to the 40 highest years of salary, the average income base would be lower, which would result in lower benefits for most people.

Reduce the size of the annual Social Security COLA (Cost of Living Adjustment) - This would help the program in the short-term, but receiving a COLA that is less than the rate of inflation would compound over time, until eventually more beneficiaries would fall into poverty and need other types of government assistance.  Many retirees already feel that the current COLA does not keep up with inflation, so this could make the problem even worse. 

Gradually increase the age when people can collect their benefits - Instead of age 62 as the lowest age to collect, and age 67 to receive full benefits, those ages could be increased a month at a time.  As of this writing, the Republican Study Committee and House of Representative leaders have proposed that Social Security's full retirement age gradually be increased by three years so that people born in 1978 or later would have a full retirement age of 70 instead of 67.  They would also like to increase the age for early retirement from age 62 to a later age.  However, this proposal is likely to hurt people the most who have spent their lives working in low-income, physically demanding jobs, because people in those positions often have to retire sooner than they expected. 

Combination of Above Suggestions

The most likely solution will be some combination of several of the above ideas, so that no single suggestion affects a specific group of people too much.  The important thing to recognize from this information is that there are solutions that would fix Social Security, and if done properly, the changes would only cause minor inconveniences to most people.

What You Can Do

Whether you like one or more of these ideas, or you have other suggestions of your own, WRITE  YOUR  CONGRESSMAN  AND  YOUR  SENATOR and insist that they take Social Security off the back burner and address the problem.  There are solutions.  There is no reason why anyone should have to fear losing all or a significant portion of their Social Security benefits in the future, but Congress needs to take action to protect the millions of people who depend on this program during retirement and who paid into it for decades. 

Readers are also encouraged to update their private retirement planning, by making sure that they are putting as much money as possible into a 401(k) or IRA.  They may also want to investigate ways they could turn a hobby into a side income during their retirement years, so they are not totally dependent on Social Security.

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