Social Security is in a pickle

The Social Security trust fund that helps pay retirement, disability, and family benefits to nearly 70 million older Americans will become insolvent by 2033 – one year earlier than previously thought. After that point, Social Security will only be able to provide 80% of all benefits owed.

That’s according to an annual report published Friday by the Social Security Board of Trustees, which is tasked with overseeing the financial operations of the program.

🤔 What’s the problem?... In short: more Americans are drawing benefits from Social Security than ever before, but there aren’t enough new workers paying into the program to sustain it (since SS uses funds from those currently working to pay the retired folks).

Most experts attribute this growing discrepancy to a pair of US demographic trends in recent decades: lower birth rates, and increased lifespan for older Americans.

• In 1960, the average number of children born to a woman in the US was 3.6; by 2020, that number had declined to 1.6.
• An American who reached the age of 65 in 1960 was expected to live to 80; today, that person is expected to live to 85. (Over the same period, the minimum US retirement age increased by two years to 67.)

💥 The impact: In 2021, Social Security went all Freaky Friday and flipped the script, beginning to pay out more in benefits than it took in via taxes and interest on securities for the first time in nearly four decades. As a result, the size of the program’s excess funds shrunk by $100 billion that year, to $2.8 trillion.

And much like Benjamin Button in his tweens, the shrinking isn’t projected to stop there. Social Security’s trust fund is projected to keep diminishing over the next decade until it becomes completely depleted in 2034, forcing a 20% cut in benefits across the board (and potentially more in the future).

💡 Is there anything we can do about it?... In its report, the Social Security Board of Trustees proposed three potential solutions to keep the program solvent for the next 75 years:

1. An immediate Social Security tax increase of 3.44 percentage-points to 15.84%, split equally between employers and employees (it’s currently at 12.4%).
2. An immediate 21.3% cut in Social Security benefits across the board.
3. Some combination of the first two options, with lower tax hikes and smaller benefit cuts.

📊 Flash poll: Which of the following potential solutions would you support?

Tax hike

Benefit cut

Combination of both

Raise the minimum retirement age (like recently done in France)

Do nothing

Other/unsure