An annual report from the Social Security Administration (SSA) released weeks ago showed that the trust funds from where the benefits are taken from will be depleted earlier than initially projected. This has caused doubts and panic to the recipients of Social Security benefits. However, financial experts say that this should not be the case because they will continue getting their benefits, albeit at a reduced amount.
The annual report from the SSA and Medicare trustees noted that the benefits will be reduced by 2034. In an earlier report, the projection was 2035. They pointed out that the benefits will be cut by 2034 if Congress does not address the program’s long-term funding dilemma. Later, more reports surfaced claiming that if there will be nothing done to address this, the possible amount that a Social Security beneficiary would get will be reduced to 75 to 78 percent.
Per the opinion of Monotelo Advisors, a Chicago-based financial and tax planning firm, although there will be an early reduction, it does not mean that the funds will really run out.
Monotelo Advisors pointed out on their website that if the only funds available to Social Security are the current wage taxes, the SSA can still pay three-quarters of promised benefits. Monotelo Advisor continued to say, “While a 25% reduction in benefits could significantly hurt the retirement plans of those who are relying on their Social Security benefits, it is far less damaging than the program being shut down entirely.”
Scott Thoma, a retirement strategist at Edward Jones, also told GOBankingRates saying that although the Social Security reserves could run out a year earlier than expected, it does not mean that the SSA will be bankrupt. He then suggested changes to address the issue, saying, “In order for the program to remain fully funded through the 75-year projection period (they run it for 75 years — through 2095), payroll taxes would need to rise about 3.36%, or just under 1.7% for both the employer and employee, to fully fund the program. If no changes are made, benefits would need to be cut by 24% starting in 2034 (they would be able to pay 76 cents for every dollar of benefits).”