Many Americans have a fundamental misconception that Social Security is on the brink of going broke, leaving current and future retirees without any safety net the program is designed to provide. While it’s true that the Social Security Trust Fund is projected to become insolvent, this means that under current law it will be unable to pay full benefits to all beneficiaries once its reserves are depleted.
The concern for insolvency comes from the fact that the Baby Boomer generation is retiring, leading to an increase in retirees and a decrease in the number of workers paying into the system. As a result, the Trust Fund is projected to be depleted by the early 2030s. Even after the depletion of the Trust Fund, payroll taxes will still provide revenue for the program, but it is currently projected to only be enough to cover about 75-80% of promised benefits to retirees and those on disability.[1]
Possible Solutions
In order to fix the problem, clearly lawmakers must make changes to the current system. There are a number of ways they could do this. Here are a few:
- Increase payroll taxes: Raising payroll taxes would increase the revenue flowing into the Social Security Trust Fund. A modest increase in payroll taxes could help maintain the solvency of the program without imposing a significant burden on workers. The current rate is 6.2% for employees.[2]
- Raise the cap on taxable earnings: Currently, there is a cap on the amount of income subject to Social Security taxes. In 2023 the cap is set at $160,200.[3] By raising or eliminating this cap, more revenue would be generated from higher-income earners.
- Adjust the retirement age: As life expectancy increases, it may be necessary to adjust the full retirement age to better reflect the population’s changing demographics. This would result in a longer period of payroll tax contributions and a shorter period of benefit payouts.
- Means-test benefits: Implementing a means test for Social Security benefits could reduce the burden on the Trust Fund by directing benefits only to those who need them most. This could involve reducing benefits for higher-income individuals.
No solution is perfect, but the point is that are ways to fix the current financial status of Social Security. With that said, it is crucial to understand that the projected insolvency of the Trust Fund means a potential reduction in benefits, not the complete disappearance of the program. By exploring and implementing various solutions, it is possible to address the solvency issue and ensure that future generations receive the full Social Security benefits they have been promised.
[1] “Summary of the 2023 Annual Reports” – https://www.ssa.gov/OACT/TRSUM/index.html
[2] Ibid.
[3] Ibid.
