Social Security may be running out.
Retirement can be intimidating for many Americans.
Without a continual stream of income, it is challenging to pay bills or cover the costs of daily living.
Many Baby Boomers have been working at least since their early teen years, if not earlier.
Work is just part of our DNA.
Currently, Americans must rely on Social Security and either continue working past retirement age or dip into retirement accounts to pay for living expenses when in retirement.
According to the Social Security Administration, about half of Americans age 65 or older live in households where these government payments account for at least half of their income.
A quarter of such households depend on Social Security for their entire income.
According to a recent Money Talks News article titled “Will Social Security Run Out of Money?,” Social Security may not always be a safe option.
Over the years of its existence, Congress has periodically resolved the financial crises of the program through adjustments.
This may not be the case in the future.
How does Social Security work?
These benefit checks in retirement utilize funding from taxes on Social Security retirement income as well as payroll taxes from Americans during their working years.
In 2022, employees and employers each had to contribute 6.2 percent of wages to Social Security with a cap at $147,000 in income.
Individuals who are self-employed were required to pay the 12.4 percent themselves.
I know this for a fact.
Of those who receive Social Security checks in retirement, 40 percent of these individuals qualify to pay taxes on this income.
How fun is that?
Although the numbers have not been released for 2022, you can see the Social Security sources breakdown for 2021.
The payroll tax accounted for 90.1 percent of the funds at $980.06 billion.
$70.1 billion came from interest on invested funds and accounts for 6.4 percent of the fund resources.
Taxes on Social Security benefits generated $37.6 billion and accounted for 3.4 percent of the fund resources.
At this time, more money is being paid to individuals than is entering the funds.
That calculus is not trending in a positive direction, no?
The $2.9 trillion trust fund is shrinking while paying for these benefits.
Without adjustments, current estimates predict the fund will be empty in 2034.
What does this mean for Social Security?
Will it end and leave people destitute who paid into the system during their careers?
Payroll taxes could continue to fund benefits.
In fact, it may be able to account for up to 75 percent of benefits for the next generation.
In 2096, it is likely the income in Social Security could pay up to 74 percent of its expenses.
Will lawmakers have to make adjustments?
They could increase the tax rate on payroll or eliminate the cap on taxable earnings above $147,000.
Local and state government employees could be included in the tax base.
Additionally, they could raise the age where recipients can begin claiming benefits.
Regardless whether you are retiring soon or will be in a few decades, you likely will not be able to rely solely on Social Security for your retirement income.
My recommendations: Give generously (God owns you and everything you “have” anyway), spend less than you make, get out of debt ASAP and stay out of debt, save what is left over, and then lather, rinse, and repeat.
Reference: Money Talks News (Nov. 8, 2022) “Will Social Security Run Out of Money?”