Working Americans pay 6.2% of their income, up to $142,800, to fund Social Security. Their employers match it. For the last 40 years, the program has intentionally collected more than it needed depositing the excess in trust funds to help fund the retirement of millions of Baby Boomers.
Over the next few years, those trust funds are expected to run dry, that excess reserve, around 2034. At that point, there would still be enough of ongoing payroll taxes to pay about 75%, 80% of promised benefits.”
The Social Security Administration (SSA) said changing demographics are part of the problem. “In 1940, the life expectancy of a 65-year-old was almost 14 years; today it is just over 20 years. By 2035, the number of Americans 65 and older will increase from approximately 56 million today to over 78 million.”
And, as the U.S. population ages the number of working Americans supporting retired Americans will decrease. “There are currently 2.8 workers for each Social Security beneficiary. By 2035, there will be 2.3 covered workers for each beneficiary,” according to the SSA.
Social Security is the primary source of income for many senior citizens. It’s really important that we think about this not just as a Social Security issue but a retirement security issue.”
Benefits may have to be reduced if Congress does not fix it and we must rely solely on the payroll tax revenue coming in.
Congress may be able fix the problem now as it did 40 years ago. If we look back to the last time Congress made major changes, in 1983, they did a combination of things. They gradually increased the full retirement age from what was then 65 and will eventually become 67.