Millions of American retirees are expected to face a social security pay-cut within the next decade. The Old-Age and Survivors Insurance (OASI) Trust Fund, is a $2.6 trillion fund which pays for retirement benefits and other program costs. The fund is funded by tax payer money and currently, it is paying out more than it is receiving. This imbalance means that without intervention, the fund could be depleted by 2033 experts project.
Depletion does not mean cease to exist
Nancy Altman, president of the Social Security works, stresses that despite projected estimates of the fund’s depletion, this does not mean that social security will cease to exist within the next decade. The fund will still receive taxpayer money each year, but unless action is made by congress, benefits to retirees would be reduced by an estimated 21%.
Additionally, the likelihood of the fund actually reaching a state of insolvency is slim. The consequences of competing political parties letting the fund reach that state would have severe voter backlash. However, the numbers are striking, and the Congressional Budget Office (CBO) has identified two key methods to extend the longevity of the social security program.
Pick your poison- raise taxes or reduce current benefits?
The CBO’s suggestions to prevent the likelihood of total depletion of the fund is twofold: first, to raise the current payroll tax rate which funds social security from 12.4% to 16.7% of taxable earnings. Secondly, to reduce benefits by 24% immediately so as to save in the long run. Analysts suggests that a mix of the two is the most likely way forward for congress to take up.
Other solutions include lifting the income cap on the current $168 600 limit where anyone who earns an income over this isn’t subject to the payroll tax for social security. “Smash the cap” would mean that low- and middle-income employees would be alleviated of the brunt of the burden of funding the social security program and would also introduce additional funding into it.
Uncertainties around the growth of the economy will also play a role in how congress chooses to act. If the economy grows quicker than CBO projections, than a less rigorous approach could be taken by congress as the annual revenue the fund receives from taxpayers would be higher. Inversely, if the economy grows slower, a more aggressive approach will need to be taken up.
4 in 10 American retirees live off the Social Security monthly benefits
Currently the average monthly benefit to American retirees from the social security fund is $1907. An income slash of this by 21% could be detrimental to the survival of retirees and America could be looking at a spiking of poverty rates among senior citizens. Historically, the fund mostly provides financial security for low- and middle- income employees who’s only retirement contribution may be from the mandatory social security tax. A decrease in these benefits would therefore ultimately hurt the most financial vulnerable who may not have any additional source of savings.
Congress is not acting as a sitting duck on the matter. Currently, a number of proposals are being drafted to address the social security insolvency issue. In the upcoming elections, social security will most likely be a large topic of discussion. Current Vice- President and Democratic 2024 nominee Kamala Harris has stated that social security will be protected by her but has yet to put forward a detailed plan.
Additional debates in the wake of the matter include talk of finding ways to also raise the benefits payouts. Many lawmakers feel that the current benefits are too low and the way forward is not just about stabilizing current benefits but also to find ways to increase quality of life for those reliant on the fund.
