In 2021, an average of 65 million Americans per month received retirement benefits through Social Security. The benefits received totaled over one trillion dollars. Among retired beneficiaries, 37% of men and 42% of women received 50% or more of their income from Social Security. It is the largest government program in the federal budget and accounts for approximately 25% of all annual spending.
Somewhere along the way, people started to believe the program was doomed. “There is so much widespread misunderstanding that the trust fund being depleted is synonymous with bankruptcy,” said Catherine Collinson, chief executive of the Transamerica Center for Retirement Studies. “It’s not true.” Few budgetary concepts generate as much unintended confusion and deliberate misinformation as the Social Security trust funds. Here is what you need to know:
Social Security is largely a pay-as-you-go program. Most of today’s benefits are funded by payroll taxes collected from today’s workers. As long as we have a workforce, Social Security will pay benefits. For over three decades, Social Security collected more in payroll taxes and other income than it paid in benefits and expenses. The Treasury invested the surplus in guaranteed interest-bearing securities, reaching a total of $2.9 trillion in trust fund reserves.
In 2021, Social Security began redeeming trust fund reserves to cover total benefit costs. These reserves will make up the difference between income and costs until the reserves are depleted. At that point, Social Security’s income could continue to pay approximately 78% of promised benefits.
Does this mean that those receiving Social Security need to prepare for a 22% reduction of benefits? Absolutely not. Does it mean that those preparing to file for Social Security will receive a reduced benefit? No, it does not. Will Gen X, Millennials, and even Gen Z receive retirement benefits? Yes, they will.
The trust funds would have been exhausted in the early 1980s if legislation had not been enacted in 1977. Further legislation was passed in 1983 to restore solvency to the program. Since then, projections have shown trust fund depletion in the year 2034. This is no surprise and the plan has always been to readdress the program’s needs by that time.
I believe Congress will, once again, pass legislation to finance Social Security and prevent trust fund depletion. Americans depend on it. There are proposals being evaluated and solutions available when policymakers decide it is time to act. Social Security retirement benefits will not come to an end.
If you would like to discuss your Social Security benefits and how potential changes would affect your retirement plan, please let us know. As Social Security experts, we are here to help.
Listen to a deep dive about Social Security on the Power Up Wealth podcast.
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