The Social Security Trust Funds
/We are very excited to be hosting Mary Beth Franklin in January. Mary Beth is a renowned Social Security expert, so if claiming Social Security is on your horizon, I encourage you to attend this special event.
You have probably seen articles or heard reports about Social Security running out of money in 2035, so in keeping with the Social Security theme, I wanted to address the Social Security trust funds in this quarter’s newsletter. When referring to the trust funds, it is generally a theoretic combination of the Old-Age, Survivors and Disability trusts. As of 2021, retired workers accounted for 76% of benefits paid, disabled workers and their dependents were 12% of funds paid and 12% of benefits were paid to survivors of deceased workers.
When Social Security started in 1935, the average life expectancy was age 65, and in the 1940s, there were 159 workers paying into Social Security for each beneficiary. Today, life expectancies are into the mid-80s and there are 2.8 workers for each beneficiary. Historically, Social Security taxes and other income not needed in the current year to pay benefits and administrative costs went into the Social Security trust funds and was then invested in special Treasury bonds. Obviously, demographic changes have resulted in a shift from accumulating trust funds to depleting them…to the tune of about $56 billion in 2021.
When the trust funds are depleted, which is expected to take place in 2035 according to the most recent Social Security and Medicare Trustees report, income from payroll taxes will cover 80% of program costs with that number declining thereafter.
The looming insolvency of trust funds has been an issue for decades and very little has been done so far. The trustees recommend lawmakers address the trust funds sooner rather than later in an effort to phase in necessary changes, giving workers and beneficiaries time to adjust, and I couldn’t agree more. Having said that, I do not expect benefits to be reduced for those near or in retirement…too many people rely on Social Security as their sole, or at least major, source of retirement income for elected officials to let this happen. I do, however, anticipate higher taxes in the future for workers and benefit changes that impact younger generations. Therefore, young people will likely need to save more for their retirement.
- Juli Erhart-Graves, CFP®, Worley Erhart-Graves Financial Advisors
