Broke as a Joke? Social Security’s Finances

What is the future of Social Security?

Is Social Security broke? Reading the news can sometimes leave you with the impression that Social Security is practically out of money. This massive program provides key income and takes in millions of dollars each year, but is it going belly-up?

Here’s how it works. The payroll taxes that you and everyone else pay each month (FICA and Medicare) go to the treasury, where they are counted as credits to the Social Security Trust Fund. Those who receive Social Security benefits get their money from what’s paid in, but there is some left over. The excess is invested in special issue U.S. Treasury bonds, which earn interest. The interest is credited to the trust fund, as well.

Right now, more money comes into the program through taxes and interest than goes out in benefit payments. Years of this excess pay-in has created a surplus that amounted to $2.7 trillion by 2014’s close. That figure will continue to increase until 2019, when the surplus is expected to reach $2.8 trillion.

But as the Baby Boomers retire and smaller birth cohorts begin to fill the ranks of the workers whose taxes fund Social Security, there will be more money going out in the form of benefits than there is coming in through payroll withholding taxes. At that point, the treasury bonds that the Social Security Trust Fund owns will be needed to help cover the benefits that beneficiaries receive.

The program is expected to fully utilize its surplus in 2034, which will leave payroll taxes as the only source with which to make benefit payments. According to current projections, those taxes will cover approximately 79% of the anticipated amount needed. Congress will have to decide whether to cut benefits or increase funding, which they could easily do by raising the limit on the amount of income to which FICA and Medicare taxes apply.

Social Security isn’t exactly going broke, but it will need to be tweaked in order to provide the benefits that today’s workers have been promised when they retire. Do you have an opinion on how to handle the future shortfall in the program’s budget? Let your senators and representatives know!

To receive your own customized Social Security benefit projections please visit our website www.socialsecuritybp.com to learn more or sign up for a plan.

Not associated with or endorsed by the Social Security Administration or any other government agency.

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