NEW YORK (MainStreet) — The rattle in Social Security’s piggy bank will be silenced one year later than previously forecast, according to the latest report from the retirement fund’s trustees. The 2015 edition of the annual summary said Social Security’s trust fund will run out of money in 2034, instead of 2033 as was forecast last year.
If you’re like many Americans, you think that means you’re not going to get anything from Social Security when you retire. A 2015 Pew Research Center survey found 41% of people who had not yet retired believed that by the time they were ready to retire, there would be no money for benefits.
But, while the latest summary bluntly states that the trust fund will be empty in 19 years, that doesn’t mean future retirees will get nothing. Even after 2034 and if nothing is done, Social Security will be able to pay about 77% of the current level of benefits. While that’s not great, it’s not nothing. And there are options for making up the shortfall, including raising taxes and reducing benefits.
So, despite the somber tone of the report, it’s not as bad as it may sound. Nancy Altman, chair of the Washington-based Strengthen Social Security Coalition of about 300 business, labor and other groups, says it’s likely solutions will be found and future benefits will be preserved. “Today’s younger person especially should have a sense of confidence,” Altman says.
Confidence in Social Security is central to retirement planning. Retirement plans almost always start by assessing Social Security benefits. That is where planning often ends for retirees who lack private pensions or personal savings, of course. But for all but the most affluent, Social Security benefits are essential to retirement security. “Without Social Security, people have no hope of retiring,” says Altman.
Michael Brady, president of Generosity Wealth Management in Boulder, Colorado, says he always takes Social Security into account when helping clients plan for retirement. But he also tells clients to take control of their own finances. “Don’t abdicate responsibility to a government you have no control over,” Brady says. “Save 15% of your after-tax income and have a good financial plan.”
Although it may be hard to predict its future, it is easy to see that Social Security is highly significant today. The program paid out $714 billion in 2014, making it the largest of all federal programs in terms of spending. That money went to 48 million people, most of them retired.
The program’s size, the number of people affected and the size of the problems -- Social Security will pay $76 billion more than it brings in for the next few years, and it gets worse rapidly after that -- make fixing it politically difficult. Potential remedies are limited: raise taxes, reduce benefits or do some combination. Agreeing on details, however, has been elusive.
One suggestion is removing the upper income cap on Social Security taxes. Right now contributors pay 6.2% on every dollar of wages up to $118,500. Employers pay another 6.2%. Raising the cap to $250,000 or so would, by itself, bring in enough additional funds to solve much or most of the shortfall. Many people think this is one of the most likely fixes to be implemented, because it would affect a relatively small number of upper-income earners.
Other fixes include raising the retirement age. Currently 66, the age for becoming eligible for full benefits is set to rise to 67. “It’s very possible they’re going to make that 68 or 70,” Brady says. “That is politically palatable because it’s a long time out.”
Other solutions include increasing the 6.2% employer contribution and dedicating a tax on large estates to Social Security. Brady notes that many state public pension funds have begun providing new employees with reduced benefits. He speculates that something like that could happen to Social Security. “People in their 20s and 30s might have different promises than people like me in their 40s and 50s,” he says.
Exactly what will happen is not at all clear. But given trustees’ rising tone of urgency -- it is especially strident with regard to Social Security’s separate disability
income trust fund, which is projected to run out of money next year -- it’s becoming increasingly likely that political leaders will have to grapple with it.
Meanwhile, will today’s pre-retirement workers have have trouble feeling confident about Social Security, most experts say they should. “For the next 19 years, Social Security is fully funded to cover all benefits,” Altman says. “Over the next 75 years, it’s about 87% funded. So there is a shortfall, but it’s manageable.”