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There Might Be A Significant Cut To Social Security Benefits In 9 Years

Social Security Benefits
Social Security Benefits; Source- AARP

While 76% to 88% of prospective retirees expect Social Security to be a major or minor source of income, 80 percent to 90 percent of then-current pensioners have stated that it is a major or minor source of income. Many elderly people who qualify for Social Security would find it difficult to make ends meet if they weren’t promised a monthly benefit.

Social Security Benefits

Social Security Benefits; Source- Investopedia

Future Of Social Security Benefits

Social Security is not going bankrupt or becoming insolvent. Nearly 91% of its $1.222 trillion in revenue in 2022 came from payroll taxes on earned income, which includes wages and salaries but excludes investment income. Social Security will continue to collect money and pay out benefits to qualified recipients as long as Americans work and pay taxes. Put another way, Social Security cannot possibly fail mathematically given the way it is now funded. However, this does not imply that Social Security is in excellent form, even if it is not bankrupt.

The Social Security Board of Trustees publishes an annual report each year that examines the program’s internal workings and makes well-informed projections about its prospects over the next 10 and 75 years, accounting for changes in monetary and fiscal policy as well as prevailing demographic trends. The Trustees have warned since 1985 that Social Security’s outlays (benefits + minimal operating costs to run the program) would not be sufficient to offset its long-term revenue. As of the 2023 report, Social Security’s long-term unfunded obligation had ballooned over almost forty years to an astounding $22.4 trillion.

Social Security COLA To Run Out By 2033

What’s concerning is what might occur with benefits for retired workers in the not-too-distant future. The Old-Age and Survivors Insurance Trust Fund’s (OASI) asset reserves are expected to run out by 2033, according to the 2023 Board of Trustees Report. If the OASI uses up all of the excess funds, it has accrued since its founding, retirees’ and survivors’ benefits may see significant reductions of up to 23%. Reducing annual take-home by $5,267.87 would result in a 23% benefit drop, based on the average retired worker check of $1,909.01 for January 2024. But bear in mind that this amount is expressed in 2024 dollars and does not take into consideration the annual COLAs that adjust for inflation.

Average Social Security Benefits

Social Security’s COLA has averaged 2.6% during the last 20 years. You may be asking what went wrong to make Social Security collapse so spectacularly after years of stability. I can promise you that none of the popular misconceptions on social media, such as Congress embezzling money and undocumented workers getting benefits, are true. Several continuous changes in the population are mostly to blame for Social Security’s problems. A number of these modifications are prominent and widely acknowledged by the general population. For instance, more baby boomers are retiring. The worker-to-beneficiary ratio is under pressure to decline as baby boomers retire from the workforce.

Put more simply, there aren’t enough fresh employees to replace the baby boomers who are starting to retire. In a similar vein, life expectancy in the United States has improved since 1940, when retired-worker benefits started. The majority of Social Security claimants were not intended to receive payments for one or more decades. Perhaps a more pressing concern for Social Security is the significant demographic changes that are not widely acknowledged. For example, since 1998, legal immigration to the United States has more than halved. Since most new immigrants to the country are younger, they will likely work for decades and pay payroll taxes during that time.

 

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