3 Surprising Facts About the Future of Social Security

For millions of retirees, Social Security is a lifeline. More than 70% of retirees say they significantly rely on Social Security benefits, according to a recent survey by The Motley Fool. Of that group, 40% say they rely on their benefits completely.

But there are big changes on the horizon for Social Security — some of them good, and some of them not so good. Here are three things to expect in the coming years.

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1. Benefit cuts could be looming

The Social Security Administration (SSA) is currently facing a cash shortfall. The program's expenditures are surpassing its income, meaning it's paying out more money in benefits than it's receiving from taxes.

To cover the deficit, the SSA has been dipping into its two trust funds. This has allowed the program to continue paying out full benefits, despite the cash shortage.

The problem, however, is that those trust funds are expected to run dry by 2035, according to the latest estimates from the SSA Board of Trustees. Once that happens, taxes and other sources of income will only be enough to cover around 80% of projected benefits — meaning a 20% benefit cut could be on the horizon.

2. However, Social Security isn't going bankrupt

The good news is that this problem isn't as severe as some people may think. Around 70% of workers believe that Social Security will not be there for them when they retire, according to a 2022 report from the Transamerica Center for Retirement Studies. Despite its cash shortfall, however, Social Security is not going bankrupt or going away completely.

The program relies primarily on payroll taxes to fund benefits. Workers pay into the program through taxes, and that money is paid out to retirees. Then when today's workers retire, younger workers will fund their benefits through taxes.

Even once the trust funds are depleted, there will be at least some money to pay out in benefits. In other words, as long as workers continue paying taxes, Social Security is not going away entirely.

3. Big changes could be ahead

The best-case scenario is for Washington to find a solution to Social Security's cash shortfall before 2035, avoiding benefit cuts altogether. But lawmakers are divided over potential solutions. Some of the most popular options include:

Raising taxes for wealthy workers: Currently, only income up to $147,000 per year is subject to Social Security taxes. But some lawmakers have suggested taxing all income over $400,000 per year, as well. This would increase the amount of money flowing into the program, allowing the SSA to pay out more in benefits.
Increasing the payroll tax: This proposal would raise the payroll tax. This would affect all workers subject to payroll taxes, regardless of income, and it would serve to increase Social Security's funding.
Raise the full retirement age: Right now, the full retirement age is between ages 66 and 67 for all adults. But some lawmakers have proposed raising that age to anywhere from 68 to 70. Under this proposal, workers would need to wait longer to receive their full benefit amount, reducing their lifetime benefits — and reducing the program's expenditures.
Reduce benefits for higher earners: Some lawmakers have also suggested reducing benefits for the top 20% of earners, which would also bring down Social Security's expenditures. These higher earners would still receive more than the average retiree, but not as much as they generally would collect.

Nothing is set in stone yet, as Congress hasn't been able to agree on any of these potential solutions. But as we get closer to 2035, Washington will feel increased pressure to do something before retirees face benefit cuts.

There could be big changes on the way for Social Security, but we won't know exactly what to expect until Congress comes to an agreement. By staying up to date on these changes, you can ensure you're as prepared as possible for whatever may happen.

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