Social Security trust funds are running low. Here’s what you should know
The following is an excerpt from “This Week, Your Wallet,” an audio program produced by CNBC Personal Finance Team. Listen to the latest episode Here.
Social security is that biggest Federal program in the US The vast majority of older Americans receive Social Security benefits, which either partially or even fully fund their retirement income.
Nevertheless, the program faces solvency problems.
“Their overall health impacts virtually every American,” said David Blanchett, head of retirement research at PGIM, the wealth management division of Prudential Financial.
Here are four takeaways from a recent conversation with Blanchett about the future of Social Security; Doug Boneparth, certified financial planner and founder of Bone Fide Wealth in New York; and CNBC personal finance reporter Lorie Konish.
1. Social Security is “America’s Retirement Safety Net”
Virtually every retiree receives some sort of guaranteed income — and Social Security is “by far” the most important of those sources of income, Blanchett said.
According to the Social Security Administration, about 97% of Americans age 60 and older receive or will receive Social Security benefits Data. According to the data, among older Social Security recipients, 37% of men and 42% of women receive at least half of their income from the program a 2021 SSA report using data from 2015.
Social Security is “America’s retirement safety net,” Blanchett said.
“It’s really hard to underestimate its importance, especially when it comes to securing income in retirement,” he added.
The average pension in June was $1,837 per month.
Approximately 67 million Americans receive a Social Security check each month. Most, but not all, are retirees – disabled workers, surviving spouses and dependents are among the others who are eligible.
2. Demographic developments are putting a strain on the program’s finances
Social Security finances are under pressure.
Beneficiaries live longer, which means the program spreads payments to recipients over a longer period of time. And about 10,000 baby boomers are retiring daily. The proportion of workers paying into the system (through payroll taxes) has declined relative to the number of beneficiaries, creating an imbalance.
As a result, the Old Age and Survivors Insurance Trust Fund, which supports Social Security benefits for retirees, went into effect without legislative action estimated dry up in 2033.
3. Social Security will not go away, but cuts may occur
When the trust fund is depleted, that doesn’t mean the benefits are gone. Workers would continue to pay Social Security taxes and the funds raised would continue to be paid out to retirees.
However, there would be cuts – about 77% of promised benefits would be payable if the trust fund were depleted, according to the SSA.
4. There will be “losers”.
Congress will almost certainly tweak Social Security to solve the solvency problem.
Possible solutions could be to cut benefits, to delay the “delay”.E.g., “full retirement age,” increasing taxes on Social Security benefits, increasing financial penalties for claiming Social Security before full retirement age, or a combination of these and other factors.
It will likely be a “last second compromise” and “there will be losers,” Blanchett said.
However, Congress would likely not make changes that would negatively impact Americans who are or are nearing retirement.
“I would be shocked if we walked into a place where, for example, Grandma and Grandpa had their benefits cut,” Blanchett said.
“But I think that younger Americans – if you’re maybe in your 40s – should expect a lower performance,” he added.
In financial plans, Boneparth — who specializes in Millennial and Gen Z clients — illustrates the additional savings and investments that would be needed to fund a lifestyle if Social Security benefits were eliminated in their current form.
“We’re all trying to get an educated guess about how things are going to be in the future,” Boneparth said. “No matter how sound that assumption is, it’s very, very difficult to do.”
https://www.cnbc.com/2023/09/11/social-securitys-trust-funds-are-running-dry-heres-what-to-know.html Social Security trust funds are running low. Here’s what you should know
