How Safe Is Social Security?

If you're like most Americans of a certain age, you're worried about Social Security -- afraid that it won't be supporting you in your old age, when you need it. Indeed, fully 51% of those age 50 to 64 worry "a great deal" about Social Security, according to a 2018 Gallup poll, as do 49% of those age 30 to 49. Among all those polled, a whopping 72% worry about it "a fair amount" or "a great deal."

Is all that worrying warranted? Well, yes and no. Here's a closer look at how safe Social Security is.

A Social Security overview

In a nutshell, Social Security works by taxing workers and using that money to pay retirement benefits to those who are no longer working. For a long time, more money has been coming in than going out, which has filled the coffers of the Social Security trust fund. (Learn more interesting details about it here.) That dynamic is shifting, though, as baby boomers continue to retire, with the ratio of workers to retirees shrinking. Back in 1950, the ratio was 16.5, with about 48 million workers supporting close to 3 million beneficiaries. As of 2013, it was just 2.8 -- and it's expected to hit 2.1 by 2035.

The Social Security trust fund surplus has thus been shrinking and is likely to end around 2020. But that doesn't mean the entire Social Security program will then dry up and disappear. Instead, at that point, the system can rely on incoming interest payments to make up the funding deficit -- for a while.

According to several government estimates, Social Security funds are likely to see their reserve run dry between 2033 and 2037 if no changes are made. If that happens, payment checks won't disappear, but they'll likely shrink by about 25%. So the worst that is likely to happen to folks expecting to draw checks from Social Security in the coming decades is that they'll receive smaller checks. That's not good news, but it could be a lot worse.

Shoring up Social Security

Fortunately, there are a bunch of ways that Social Security can be strengthened -- and a 2017 Nationwide Retirement Institute survey found that more than 75% of future and current retirees over 50 think the program needs to be changed, with the majority of those interested in seeing it get additional funding.

So what can be done? Well, various possible changes to Social Security can strengthen the program to different degrees. For example, it's been estimated that fully 77% of the trust fund shortfall could be eliminated by increasing the Social Security tax rate for employers and employees from its current 6.2% to 7.2% in 2022 and 8.2% in 2052. (This wouldn't be the first tax increase, either. The tax rate was increased in 1983, to bolster the program ahead of many baby boomer retirements.)

Another possibility is taxing all of each worker's income, instead of just the first $128,400 of it. Many don't realize it, but there's a cap on how much of our earnings are taxed for Social Security -- for 2018, that cap is $128,400. Most of us are taxed on all our income, but those lucky enough to earn, say, $1,128,400 in 2018 will pay no Social Security tax on $1 million of their income. Eliminating the earnings cap over a 10-year period, so that all of us are taxed on all our income, is estimated to be able to wipe out 71% of the trust fund shortfall.

Shrinking Social Security

Unfortunately, many in power in Washington these days are more interested in shrinking Social Security than beefing it up. They have suggested increasing the "full" retirement age, at which retirees can begin collecting their full Social Security benefits, from the current level (age 66 or 67 for most folks) to 68, 69, or even 70. A later retirement age will still mean a shorter retirement for those who choose to wait until that age to retire -- and fewer benefits paid to them, too.

Many have also proposed fully or partly privatizing Social Security. This could take various forms, such as Americans being put in charge of investing retirement funds for themselves, perhaps through an investment company -- not unlike how they manage their 401(k) accounts. Its downsides include the fact that many people are not very savvy financially and may not do well managing these vital funds, and that an economic downturn could significantly shrink many people's retirement coffers.

What you can do

Social Security is crucial to most Americans -- either now or in their future -- so learn more about it and keep up with developments regarding it. You might also want to make sure your representatives in Washington know whether you'd like them to protect or strengthen the program.

Be sure to make smart decisions, too, such as acting on as many ways to increase your Social Security benefits as you can. For example, aim to work for at least 35 years, as the benefit formula is based on your 35 highest-earning years. Consider starting to collect your benefits sooner rather than later, too, unless you have a good chance of living a life that's significantly longer than average. If you're married, coordinate when to start taking benefits with your spouse.

The more you know about Social Security, the more you can get out of it.

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