Most estimates project that the Social Security Trust Funds will be depleted by 2037.
The system could still function at 70% of their full obligations by transferring cash flow directly from social security taxes to the retired beneficiaries, which most people don’t realize when they spread the news that the system is tanking. Adjustments to the system and interest rates could change how this plays out and keep it operating closer to full capacity.
The constant proliferation of rumors that Social Security will go bankrupt should not pass under the radar. Unfortunately, it is completely true that their reserves could run out in the next 20 years if something does not change, but the system is not entirely dependent on the Trust Fund reserves.
Some sources estimate that Social Security funds will run out by 2037, while others estimate as soon as 2031, unless Congress approves a hike in the amount of tax revenue contributed to the program or a reduction in benefits.
In 2014, the Teamsters Union pension became the first pensioners to see their pension benefits legally reduced under new legislation, and this trend could extend to Social Security.
Pension plans are under strain partially because bond interest rates have been so low for so long, but they need the safety of bonds to avoid market losses. The Social Security Trust Funds can only be invested in Treasury Bonds, which obviously have not been paying a high yield.
In 2010, the increased number of layoffs caused more people to file for social security, and the program operated at a deficit, dipping into the reserves in the trust funds, for 3 years straight.
Every year, the government tries to mitigate the situation by increasing the Normal Retirement Age, increasing the FICA tax (which is a hotly contested issue), decreasing Cost of Living Adjustments, and increasing the limits on the considered income for which FICA is paid.
Currently only $118,500 of compensation is considered for the Social Security tax, so a maximum of $14,694 (which is 12.4% of $118,500) can be collected from even the wealthiest Americans. This will probably be one of the changes that helps keep the program fully funded.
They will also probably apply more taxes to benefits payable to individuals with relatively high amounts of taxable income in retirement. The Social Security disability trust fund is projected to run out of money much sooner than the Old Age and Survivors trust fund.
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