Will Social Security go broke by 2032?
According to the last Social Security Trustee’s report, if Congress does not address Social Security’s long term funding issue, then in the year 2032, benefits will have to be cut by 20% - 25 %. As that date gets closer, and our politicians refuse to address and resolve Social Security’s long term funding issue, many current Social Security recipients and future recipients, are convinced that their benefits will be cut in 2032.
If that were to happen, that would push millions of people over the age of 65 into poverty, and result in millions of more people over the age of 65 struggling financially to make ends meet.
Let’s look at the negative impact a 25% cut in benefits would have. Currently, about 70 million people receive a Social Security benefit every month. Of those 70 million recipients, for about 15%, or over 10 million people, their Social Security benefit is their only source of income. A 25% decrease in benefits would have a devastating effect on their standard of living and quality of life.
In addition, for about 42% of recipients, or 25 – 30 million people, their Social Security provides at least 50% of their income. A 25% cut in benefits would also have a huge negative impact on their standard of living and their ability to make ends meet.
The bottom line is too many people are either totally dependent or critically dependent on Social Security, for our politicians to do nothing and let their benefits be cut by 25% in 2032. Our politicians are aware of these statistics and how critically important Social Security is in the lives of tens of millions of benefit recipients.
I believe they will address Social Security’s long term funding issue before 2023 and they won’t cut everybody’s benefits by 20% - 25 %. So the big question is: “How will they address Social Security’s finances?”
How the SSA will address Social Security’s financial situation
In order to answer that question, we can look at how they addressed that issue in the past. The last time our Government addressed Social Security’s long term funding issue was in 1983. They were only a couple of months away from having to decrease everyone’s benefits, before they reached an agreement.
With that agreement, they made two major changes. They increased the FICA taxes to 6.2% and they increased the Full Retirement Age from age 65 to age 67. That increased Full Retirement Age was phased in over 20 – 30 years, so people over the age of 60 were not affected, basically they were grandfathered.
In order to fix the current long term funding issue, they will have to do something similar, increase the FICA taxes and increase the Full Retirement Age to age 70. Just like in 1983, I would expect they would implement those changes over time and people over the age of 60 would not be affected by those changes.
There are some other changes they could make, especially when it comes to the Earnings Cap. In 2026, once your earnings exceed $184,500, Social Security stops taking out their FICA taxes. In other words, any earned income over $184,500 is not taxed by Social Security. Only 6% of wage earners have income that exceeds $184,500. That means that 94% of wages earners in this country pay Social Security taxes, or FICA taxes, on all their income. Raising that Earnings Cap to $500,000 or eliminating it all together, would go a long way to addressing Social Security’s long term funding issue.
It’s important to note that Social Security CANNOT borrow money in order to make benefit payments. The government could change that law, but currently it is illegal for Social Security to borrow money to make benefit payments.
No one can predict what our politicians will do, but I am very confident that they will eventually address Social Security’s long term funding issue before they have to cut everybody’s benefits.
