Social Security Reserves at Risk: Experts Warn of Crisis by Next Decade

Social Security Reserves at Risk: Experts Warn of Crisis by Next Decade
Cover Image Source: Unsplash | Photo by Yuri Krupenin

The Social Security Administration's (SSA) reserves could run out within the next decade unless major action is taken, experts have warned. Burt Williamson, a retirement specialist with PlanPrep, said that the government agency is approaching a situation similar to that of 1983 when funding was almost depleted, resulting in significant but quick reforms being pushed through.

Image Source: Pexels|Photo by T Leish
Image Source: Pexels | Photo by T Leish

Recent polling by Redfield & Wilton Strategies found that the vast majority of people were concerned over whether their Social Security retirement benefits would be reduced before they stopped working. Furthermore, an October 2023 report by the American Academy of Actuaries (AAA) revealed that Social Security's trust fund could dry up by 2034.

If so, it would mean the largest welfare program in the U.S. could only pay 80 percent of the benefits for millions of recipients. The 2022 Social Security Trustees report made similar findings, predicting that retirees will only receive 77 percent of their pension in 2034 if immediate action is not taken.

A severance package can help a lot survive the unemployment phase. Image Source: Unsplash|Photo by Jp Valery
Image Source: Unsplash | Photo by Jp Valery

Reforms enacted in 1983, under President Ronald Reagan, were expected to ensure the SSA's solvency through to 2060. According to the SSA, solvency is defined as "the ability of the trust funds at any point in time to pay the full scheduled benefits in the law on a timely basis."

"Right now, there's about 10 years to fix the problem. Back in 1981, President Reagan had less than three years before the retirement trust fund was expected to run out of money," Williamson explained.

"There are three preceding cost-of-living increases of 9.9 percent, 14.3 percent, and 11.2 percent from 1979 to 1981, meaning that at the time all three trust funds retirement, health care, and disability were going to run out," he added.

Cover image source: Pexels | Photo by Sora Shimazaki
Image Source: Pexels | Photo by Sora Shimazaki

While lawmakers still have considerably more time at this stage to consider a solution, the economic climate of the decades since 1983 and demographic changes have now resulted in a near 30-year cut to the date when funds were previously expected to run out, according to the AAA's calculations.

Williamson recommends three key areas in which the government can avoid cutting benefits to current Social Security claimants. "Delaying the start ages for retirement benefits by a few years for younger workers, eliminating the cap on the wage tax (OASDI) affecting the top six percent of wage earners, and setting a cap on the maximum benefits payable to anyone, regardless of the amounts contributed," he stated.

A severance package can help a lot survive the unemployment phase. Image Source: Unsplash|Photo by Jp Valery
Image Source: Unsplash | Photo by Jp Valery

There is currently no indication that benefits will cease entirely in the foreseeable future. Nevertheless, without intervention, the Social Security Administration (SSA) may find itself only able to cover approximately 80 percent of benefits with income from payroll taxes. Furthermore, the likelihood of legislators failing to implement some form of resolution is low.

"Policymakers have only 11 years left to restore solvency to the program, and the longer they wait, the larger and more costly the necessary adjustments will be," a report by the Committee for a Responsible Federal Budget warned in March 2023. "Acting sooner leaves more options available, allows for more gradual phase-ins, and gives workers time to plan and adjust."

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