The trust funds that assist Social Security are seen to run out by 2033, a year earlier than what was initially reported in 2020 where forecast showed that the Social Security OASI Trust Fund will be exhausted by 2034. Now how will seniors retire by then?
The Annual Security and Medicare Trustees release a report yearly which indicates and outlines the social safety net stands. In previous years, the trust fund that supports Social Security payments to millions of American has been struggling.
In simple terms, the trust fund is running out and will soon be empty. This doesn’t mean that monthly payments for seniors will vanish for current retirees. It means that those who are planning to retire in the future, 20 to 30 years from now, must plan for a drastically lessened Social Security Benefits. So much how will be reduced of the Social Security Benefits?
If the trust fund does run out, the estimate figure as of now shows that benefits would be slashed by 20-30%. “At that point, the law says we can only pay in benefits what we raise in taxes which means a 22% across the board benefit cut,” explained Marc Goldwein, Senior Vice President of the Committee for a Responsible Federal Budget.
So what does this equate to? Those who are currently receiving benefits of $20,000 from Social Security, the decrease would mean a $16, 000 annual benefit. “It’s a pretty big reduction to happen so sharply and it and would happen to everyone,” Goldwein added.
And to make things worse, according to the Office of Inspector General, over a 12-month period up of $125.2 million in social security checks went to deceased beneficiaries. But, recent reports also said that the benefits are increasing in 2022. Why the rise if trust fund is about to dry up?
A 6% boost is expected to come in 2022, according to reports. Although it was not officially announced yet, it is likely to be formalized in October by the Social Security Administration.
When the 6% boost applies, this means an at least $100 additional monthly benefit for average social security recipient. So how is this possible?
The trust fund that supports social security is a different account from the one paying out benefits. The funds collected in withholding and taxes is what allows a pay for benefits on a month-to-month basis which is how benefits could rise and continue being paid out to some extent if the trust fund dries up.
The trust fund is successfully supporting the account that pays benefits to keep it solvent or debt-free. When it runs out, then insolvency happens, or the trust fund is no longer able to fund social security.
Will it ever get fixed?
Yes. There are several solutions to bring social security back in balance. One is to thwart recipients from claiming their benefits early, but not the best solution. Although fiscal conservatives believe this is a favorable move, progressives believe that raising taxes is the best way to prevent the trust funds from running out.
Here how these options could be accomplished:
First is to increase penalties to beneficiaries who claim their check early. This will prompt retirees to wait a little longer for their benefits. This is a way to save money without increasing tax burden.
Another is increasing the tax from 12.4% to about 16%. Not ideal but could be necessary as more people retire earlier. Another is to remove the wage cap which is at $142, 800 at present. If this happens, don’t worry since current rules means employers and employee would split the total tax, meaning the withholding on a working age person would be roughly 8% of earnings.
A bill was recently introduced where beneficiaries will avoid living in poverty. Democrats are currently pushing for the lowest earners in the system to earn more. This will happen if Supplemental Security Income benefits is increased. But as of present, there are no bills that are actively being discussed in Congress to save the trust fund that supports Social Security.