If you’d like to know how many people are on Social Security, you may be thinking about future access to Social Security retirement benefits. At mid-year 2016, Social Security Administration (SSA) reported that about 49 million Americans receive monthly Social Security retirement income today. Like other countries around the world, Social Security—our social insurance and retirement benefits program—faces cash shortfalls as more workers retire in the coming years.
Social Security must make adjustments to pay out on Baby Boom generation retirees’ claims. The approached used by other nations, such as France and Greece, and some U.S. municipal retirement programs, includes increasing retirement age and reducing benefits to retirees. Although neither approach is popular with those who depend on social insurance benefits, plan administrators want to prevent insolvency.
Today, Social Security Administration knows changes must be made to OASDI. By 2034, too many retirees will claim Social Security retirement benefits and too few Gen-X and Millenial workers will replace payroll tax payments needed to conserve excess cash the fund has today. If changes aren’t made to Social Security now, OASDI will deplete cash reserves on hand in just 16 to 18 years. It’s your responsibility to check your Social Security Statement at least once each year. Visit My Social Security Accountto review your Social Security Statement.
Social Security Retirement Benefits
In the next 18 years, SSA knows that fewer new workers will pay into Social Security and more workers than ever will claim retirement benefits as Baby Boomers (those born between the years of 1946 to 1964) retire. Social Security says about 70 million Baby Boomers will retire by 2030.
Costs required to meet the needs of an aging population affect both Social Security and Medicare beneficiaries. If Congress fails to act now, OASDI depletion by 2034 would require across-the-board retirement benefit cuts. Social Security retirement beneficiaries didn’t see a cost-of-living adjustment (COLA) because declining energy prices offset the rising prices of other commodities. It’s possible that a small COLA adjustment will be approved by the end of 2016.
Aging Population and Rising Social Security Costs
Social Security and Medicare were responsible for 41 percent of U.S. federal spending in 2015, up more than 36 percent in just four years. An aging population is likely to make rising Social Security costs a fact of life.
In the 1930s, the architects of Social Security designed it as a “pay-as-you-go” retirement program but, since 2010, SSA reports it’s been paying out a larger amount in benefits than taxes collected over the past six years:
In spite rising Social Security costs, annual balances remain in the black because of interest earned on trust assets.
A lower interest rate environment could change all that. SSA projects that, starting in 2020, more benefits will be paid out than taxes collected—even after it accounts for interest earned from investments.
If Congress makes no changes to Social Security, by 2020 SSA will be required to sell trust fund assets to make good on rising numbers of retirees claiming Social Security retirement benefits.
The presidential race of 2016 includes some discussion about how to protect Social Security’s solvency.
Democrats have proposed levying larger Social Security tax payments (and higher taxes in general) on the wealthy.
Republicans say they will “save” Social Security and Medicare.
Social Security Solvency
Although some experts believe that U.S. economic growth will help Social Security, a decline the covered workers to retirement beneficiary ratio has declined. About 2.8 covered workers existed per beneficiary in 2015, down from 3.2 just seven years earlier. SSA reports that the ratio will decline to 2.2 covered workers per beneficiary in the next 20 years.
The Democratic Party proposed raising income levels subject to FICA tax above the present modest USD 118,500 cap. About 82 percent of Americans earn at or less than the USD 118,500 annual income threshold. However, when the cap was created in 1983, 90 percent of Americans earned at or less than the earned income threshold:
By increasing the cap to cover 90 percent of today’s U.S. workers, SSA says the OASDI shortfall could be lowered by 40 percent.