Social Security’s future

My Comments: Followers of my comments know that I’ve talked in the past about how to fix the projected ‘crisis’ of the Social Security system. I remember the last one, and in 1983 it was fixed. At least for the time being.

What happened then was the upper threshold of income subject to what we all think of as the FICA tax was raised. In other words, if your income was higher than the earlier threshold, you continued to contribute to the system. In addition, the percentage of that income, paid by both you and your employer was raised.

We can argue until the cows come home that all that does is create job losses, and there are those who will lose their jobs. But think back to the years since 1983 if you can, and tell me that the increase I referenced in the above paragraph caused any significant economic turmoil in these United States.

Now think about the economic turmoil that will happen if 50 million people suddenly lose 21% of their income. Talk about job losses if that much money suddenly stops flowing to grocery stores, restaurants, gas stations etc.

But given the nature of politics, the fix won’t happen until the crisis happens within the last election cycle of those we elect to Congress. It’s another reason to make sure as many people as possible are registered to vote. If you are likely to be affected in some way by the 20% drop in Social Security benefits, you need to pay attention.

Sean Williams, The Motley Fool Published 10:00 a.m. ET July 9, 2018

To be frank, Social Security is a financial foundation that millions of seniors simply couldn’t do without. According to the Social Security Administration, more than three out of every five aged beneficiaries lean on the program for at least half of their monthly income, with just over a third essentially reliant on the program for all of their income (90 percent or more).

Furthermore, the Center for Budget and Policy Priorities finds that its mere existence keeps more than 22 million people, including 15.1 million seniors, above the federal poverty line. We’d probably be contending with a genuine elderly poverty crisis right now if not for the guaranteed monthly payout associated with Social Security to eligible beneficiaries.

Big changes are underway for America’s most important social program

But therein lies the rub: This guaranteed payout is in some serious trouble. While Social Security is in absolutely no danger of going bankrupt — which means current and future generations will receive a retired worker, disability, or survivor benefit, should they qualify — it is on the brink of a major transformation.

The latest annual report from the Social Security Board of Trustees finds that America’s most important social program will begin paying out more in benefits than it collects in revenue this year. In each year thereafter, with the exception of 2019, the net cash outflow from the Social Security is expected to increase. By 2034, the $2.9 trillion in excess cash that has been built up since the reforms of 1983 were passed are expected to be completely gone.

What happens then, you ask? Again, it doesn’t mean the program is bankrupt. But it does clearly demonstrate that the existing payout schedule isn’t sustainable. Assuming no additional revenue is generated above and beyond the intermediate-cost model projections from the Trustees report, an across-the-board cut in benefits of up to 21 percent may be necessary to sustain payouts (without any further cuts) until the year 2092.

Considering how dependent today’s senior citizens are on Social Security, the thought of a 21 percent reduction to benefits is frightening. As a reminder, the average retired worker is only receiving $1,412 a month, as of May 2018. This would push the average payout down to just $1,115 a month, using 2018 dollars. For added context, the federal poverty level for an individual on a monthly basis in 2018 is approximately $1,012.

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