The Pitfalls of Social Security


Social Security is becoming a hot topic once again as the trust funds responsible for the benefit are set to be depleted by 2035. According to projections from a 2019 report by the Board of Trustees for the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund, the cost of the OASI and DSI funds will exceed the amount of money coming into the funds. While they cited suggestions to ensure their solvency, the largest takeaway was that if nothing is done by 2035, dramatic policy changes will be necessary to maintain the payout of benefits. 

If no action is taken on Social Security, the report provided several examples of what would need to be done once the funds are depleted. As anticipated, their suggestions consisted of raising taxes, specifically payroll taxes, and reducing the payout of benefits to recipients. In the conclusion of their findings, a combination of their suggestions would ensure 80% solvency in the Social Security program in 2035, meaning recipients would see a 20% decrease in their scheduled benefits. In response to this report, members of Congress in both chambers introduced companion legislation to address this issue. 

In October 2019, the Time to Rescue United States’ Trust (TRUST) Act was introduced in the House of Representatives, as well as the Senate. The basis of this bill was to establish a committee that would oversee ways to increase revenue into the funds while keeping up with increasing costs. This isn’t the first time Congress has attempted to make progress on the Social Security issue. In years past, multiple bills have been presented like the Social Security 2100 Act, the Conrad-Lockhart Plan, and the Social Security Reform Act of 2016. These bills all sought to increase revenues, expand benefits, cut taxes, or some combination of the three. None of these plans have made their way to becoming law and with the current tension between parties in Congress, Americans are faced once again with the possibility of stalemate on the issue of Social Security. 

Luckily, according to the 2019 report, requiring businesses to increase their payroll taxes would not be necessary until 2035 if no action is taken until that point. Ultimately however, as government agencies update their life expectancy tables the possibility of lawmakers offering to raise the retirement age may become popular once again. This would increase revenue in the funds as individuals would be forced to work longer, thus contributing more, but Americans are also living longer. In addition to raising the retirement age, benefit payouts may be reduced to account for expanding life expectancies. 

Due to increased political tensions and years of neglect, seniors and individuals nearing retirement may want to start considering alternatives to their retirement benefits. While the potential pitfall of Social Security is projected fifteen years in the future, those years can be spent growing savings rather than worrying whether or not lawmakers can ensure solvency in the Social Security program. For many, Social Security benefits alone are not enough to make ends meet during retirement. If the funds will only be able to pay out 80% of the scheduled benefits by 2035 that will make it even more difficult for individuals who do rely on those monthly payments. 

What makes Social Security even more vexatious for retirees is that the government double-dips into recipients benefits by taxing it as income. Depending on the situation and the state of residency, seniors who work and collect a Social Security check will have their benefit taxed. Additionally, the benefit will be taxed if an individual surpasses a certain threshold of income. In essence, individuals work for a majority of their life paying into the Social Security system and face the possibility of having to deal with a depleted system not paying out a full 100% of their benefits on top of the government taxing their received benefit.  

In the end, a volatile political climate combined with the potential for a Social Security nightmare does not lend confidence that Social Security will remain solvent. Individuals nearing retirement, or in retirement shouldn’t have to worry about whether or not their money will be there for them when the government pays out the benefit. Nor should seniors be faced with the situation of having too much income that their Social Security benefits get taxed. Therefore, securing safe investment options that will ensure security long into retirement can save retirees from a massive headache in the future.