Social Security is a lifeline for many older Americans and is facing a serious problem: a cash shortage. Politicians have been debating how to solve this issue for years, and so far, they haven’t been able to come to a consensus. Here’s how President Joe Biden plans to protect the program.
Why Social Security is at risk
Social Security benefits are funded largely by payroll taxes. Workers pay into the program through taxes, and that money goes out to current retirees and other beneficiaries.
However, with baby boomers retiring in droves and seniors living longer life spans, there’s more money flowing out of the program in benefits than is coming in from taxes.
This has caused a deficiency, and the Social Security Administration (SSA) is currently dipping into its trust funds to cover the gap. Those trust funds won’t last forever, though, and according to the SSA Board of Trustees’ latest estimates, they’ll be depleted by 2035.
The good news is that even after the trust funds run dry, benefits won’t go away entirely. As long as workers continue paying payroll taxes, there will always be some money to pay out in benefits. However, after 2035, those taxes are only projected to cover around 80% of benefits — meaning retirees could see a 20% benefit cut.
How Biden plans to fix Social Security
In September, President Joe Biden held a White House event to discuss the future of Social Security and Medicare. “I’ll protect those programs; I’ll make them stronger,” he said during the event. “And I’ll lower your cost to be able to keep them.”
While there are no plans set in stone, Democrats have proposed raising payroll taxes for those earning more than $400,000 per year. That would increase the program’s funding, generating more money that can be paid out in benefits.
This proposal is less popular among Republican lawmakers, who have suggested increasing the full retirement age — which is currently age 67 for most people. Under this proposal, retirees would receive less in benefits over a lifetime, reducing the program’s expenses.
Will any of these potential solutions work?
Social Security’s problem is a complicated one and will likely require a complicated solution. Democrats’ proposal to raise taxes for the wealthy would provide an immediate boost to the program’s funding. However, it would only eliminate around 61% of the program’s cash shortfall, according to research conducted by the University of Maryland.
Raising the retirement age from 67 to 68 would only eliminate around 16% of the shortfall, according to researchers, and would also take decades to see a noticeable difference in the program’s expenses. That’s not great news, considering Social Security’s trust funds will likely be depleted within 13 years.
In addition to these proposals, there are a few other potential solutions on the table. These include raising the payroll tax from 6.2% to 6.5% (eliminating 16% of the shortfall) and reducing benefits for the top 20% of earners (eliminating 11% of the shortfall).
What can you expect in the future?
Solving Social Security’s cash shortage will likely require a combination of these proposals. Lawmakers will need to compromise, and as the clock ticks closer to 2035, politicians will feel even more pressure to come up with a solution.
It’s uncertain what the future holds for Social Security, but the Biden Administration has vowed to find a solution. Whether politicians will be able to compromise enough to see real change is unclear, but with millions of seniors relying on these benefits, lawmakers will need to start taking steps soon.
The $18,984 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $18,984 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.