The Social Security Trust Funds are projected to be exhausted in the year 2034, leading to worries about the future of the program. However, under current law, it is unlikely that Social Security could completely run out of money. Workers continue to pay FICA taxes into the system, which is the primary source of funding for about 80% of benefits for retirees, beneficiaries, and disabled participants. The Old Age and Survivor (OASI) and Disability Insurance (DI) Trust Funds only provide about 20% of funding for retirement, survivors, and disability benefits.
If the Trust Funds were to run out, benefits for existing retirees and beneficiaries may need to be reduced to a level that could be solely supported by FICA taxes paid by current workers at that time. The 2023 Social Security Trustees Report suggests that benefits could be reduced by as much as 23% in total. However, there is no mechanism for describing how benefits would be reduced for specific retirees and beneficiaries if the Trust Funds run out, leading to uncertainties about the impact on individuals.
There is a precedent to protect current retirees and older workers, as seen in the last major benefit changes to Social Security in 1983. Congress would need to agree on a mechanism for distributing any benefits reduction and pass a law for the president’s signature. The federal government could avoid the consequences of benefit reductions by increasing FICA taxes, reducing benefits, or finding other sources of funding. However, finding a compromise between reducing future benefits and increasing taxes will be necessary to make Social Security financially sustainable.
Social Security is a popular government program that provides income to millions of retirees and disabled workers. If Congress allows benefit reductions to take effect, it could impact the reelection of politicians. People can take steps to protect their retirement by urging Congressional representatives to find a solution, saving and investing more, and not claiming Social Security benefits early. It is important for individuals to take action and learn how to best protect their retirement in light of potential changes to Social Security benefits in the future.
