Hello everyone and welcome to this month’s Ask the CFP segment. This month’s question is, “When will Social Security run out?” According to the Social Security Board of Trustees, as of April of 2020, the retirement portion of Social Security, which is different than the disability side, is expected to be depleted by the year 2034. However, this doesn’t take into account the effects of COVID, which significantly reduced revenue into the Social Security trust from so many lost jobs. This means if Congress doesn’t take action sooner, the trust fund for retirees could be depleted before 2034.
A common misconnection about Social Security is that it will be gone once the trust funds are exhausted. Social Security income would still be available for retirees, but it’s expected to be reduced to 76% of what has been promised. This means Social Security income would still continue, but with a “pay cut.” As you can imagine, this topic is something few politicians have wanted to deal with because it isn’t an easy problem to solve.
At the end of the day, fixing Social Security is a math problem. Congress may decide to increase taxes on workers, decrease benefits on retirees, or both. What’s more likely to happen is some workers with higher incomes may pay more into the system and some retirees with higher incomes may receive less from the system. Also, we’ll likely see the normal retirement age extended further, especially since Social Security was originally meant to help people that lived past life expectancy, not to be a source of income for people that want to retire as soon as possible. We might also see Congress change the annual cost of living adjustment for all or some Americans. It won’t be easy, but Congress will need to take action one day to solve this. I have a feeling it will be the same the trust will be exhausted.
If you have a question about this topic or have a question for next month’s video, please send it to TFreeman@MonetaGroup.com. Thanks for watching and we’ll see you next month.
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