Millennials and those in younger generations have been hearing for their entire lives that Social Security won't make it until they retire. According to a recent announcement from the U.S. government, Social Security insolvency might happen sooner than initially planned.
What happens when Social Security runs out, and how will it impact future retirees who have been paying into the program all of their working lives?
Is 2034 the magic number for Social Security?
On Aug. 31, the Social Security and Medicare trustees released a report saying that the program will have to trim benefits as soon as 2034 if Congress doesn't fix things quickly.
Last year, a similar report said that the government would need to start cutting benefits by 2035, but the whirlwind COVID-19 pandemic pushed the date up by a year.
Why the government says Social Security is struggling extra
Due to a decline in the employment rate since the start of the COVID-19 pandemic, payroll tax revenue has slimmed. This has decreased earnings that can be used for Social Security benefits.
Also, estimates suggest that the mortality rate from the start of the COVID-19 pandemic through 2023 will have a negative impact on benefits. Currently, a delay in births is causing a gap in earnings as well (but who can keep up with the baby boomers?).
What happens if Social Security benefits run out?
If facing imminent trouble, the government would cut social security benefits (and presumably the taxes that fund it). This cut could amount to as much as 23 percent less for retirees, based on 2020 data.
While this isn't saying goodbye to social security benefits altogether, it's a big deal. Last year, half of elderly married couples relied on Social Security benefits for at least half of their income. Meanwhile, 70 percent of single elders were in the same boat.
Those metrics might have increased this year. According to the Bureau of Labor Statistics, more adults ages 65 and older left the labor force in 2020 than in any year prior (the U.S. started tracking the data in 1948). That means retirees are leading the workforce dropout rate amid the pandemic. They might think that it isn't worth it to struggle in such a fickle environment. Instead, they're relying on retirement nest eggs and Social Security benefits, the latter of which might not be available beyond 2034 if Congress doesn't institute policy changes.
Social Security insolvency isn't inevitable
According to the Social Security Administration, insolvency for the social security program doesn't have to be our fate.
They concluded the report by saying, "Lawmakers have many policy options that would reduce or eliminate the long-term financing shortfalls in Social Security and Medicare. Lawmakers should address these financial challenges as soon as possible. Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare."
Meanwhile, Medicare is under a similar threat as Social Security. Democrats have promised to protect both programs. Americans have yet to see how that would work in action.