Social Security needs a major overhaul to ensure it lasts, and every day that’s put off, it grows more costly for Americans.
The 2024 Social Security Trustees Report revealed a slightly improved outlook for the program. A year ago, the government thought benefit cuts would be necessary in 2034. Now, the Social Security Administration expects to fund all scheduled benefits through 2035, and the estimated funding shortfall after that point will be less than previously thought too.
As welcome as that news is, the fact remains that Social Security cannot continue in its current form for long. Action of some sort — to increase funding, reduce benefits, or both — needs to happen, and the longer the government puts it off, the more difficult it’s going to be for workers and seniors.
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What it could take to fix Social Security
The 2024 Trustees Report says that if the government makes no changes to Social Security, the program would be able to pay out only 79% of scheduled benefits to retired workers and their families after 2035. This is 2 percentage points more than last year’s projection, but it would still be devastating to millions of seniors.
The report also stated that if the government took immediate action to keep Social Security fully funded for the next 75 years, it would have to resort to some pretty extreme measures, like:
- An immediate and permanent payroll tax rate increase of 3.3 percentage points to 15.73% (split equally between employee and employer), or
- A 20.8% reduction in scheduled benefits for all current and future Social Security beneficiaries beginning in Jan. 2024, or
- A 24.8% reduction in scheduled benefits for all workers newly eligible for Social Security in 2024 or later, or
- Some combination of these approaches
This would have immediate consequences for nearly all Americans. A worker earning $60,000 per year would suddenly have to pay an extra $990 in Social Security payroll taxes each year if the first of these fixes took effect. And a 20.8% benefit cut would drop the average (as of March 2024) $1,913 Social Security check to $1,515 monthly. That adds up to almost $4,800 lost over a year.
Given these tough choices, it’s understandable that Congress has yet to agree upon a way to secure Social Security’s future, but further delays could worsen the problem. The 2024 Trustees Report says, “Significantly larger changes would be necessary if action is deferred until the combined trust fund reserves become depleted in 2035.”
Then, it goes on to outline what those changes might look like to keep the program solvent for the next 75 years:
- A permanent 4.02 percentage point Social Security payroll tax increase to 16.42% (split equally between employee and employer) starting in 2035, or
- A 24.6% permanent reduction in benefits for all Social Security recipients beginning in 2035, or
- Some combination of these approaches
The first option would bump a $60,000 annual earner’s Social Security payroll taxes up an extra $1,206 per year. And while we don’t know what the average Social Security benefit will be in 2035, a nearly 25% reduction is likely to put a massive strain on the millions of recipients who depend on the program.
The reality may not be this bad
The suggestions outlined in the Trustees Report highlight the importance of acting quickly to prevent Social Security’s funding crisis from becoming even more dire. But they’re also just a few of many options on the table.
For starters, the government could choose to raise the Social Security payroll tax a little and cut benefits a little so workers and seniors would share the burden rather than have it all fall on one group. There are also proposals that would target specific groups of workers or seniors for increased taxes or benefit cuts while leaving taxes and benefits for average Americans alone.
For example, workers pay Social Security payroll taxes on only the first $168,600 they earn in 2024. Increasing or eliminating this ceiling, which would require higher earners to pay more in benefit taxes, could reduce Social Security’s funding shortfall by up to 70%. If the government took this step, it would drastically reduce how much it needed to cut benefits or raise taxes for average Americans.
But it’s too soon to tell what the government will do. Those who feel strongly about what should or shouldn’t happen with Social Security should make their opinions known to their Congressional representatives and urge them to take prompt action to ensure the program’s future for generations to come.
On a more personal note, now’s the time to prioritize retirement savings if you’re able to do so. The more of your own money you have saved for retirement, the less any changes to Social Security will affect you in the future. Those who are unable to save much right now may want to rethink their retirement timeline or consider adopting a phased retirement where they gradually reduce their weekly hours rather than exiting the workforce all at once. This will help the savings you do have last longer.
No matter where you are in life, you’ll probably have to alter your retirement strategy when the government finally solidifies a plan for Social Security. Until then, just keep doing what you can to improve your own financial security, and keep an eye out for news about changes to the program.