Social Security contributes a monthly income to employees and their families after the workers have become incapacitated, reached old age, or passed away. Currently, over 50 million people receive benefits from the program from the payroll tax funds contributed by over 150 million workers and their employers. Additional modifications of the program are a certainty as Congress continues to grow and develop the program in an attempt to meet the needs each new generation.
- Question: Will current recipients of social security have their benefits cut?
- Question: Should people expecting to retire in five to 10 years expect currently scheduled benefits to be paid at retirement?
- Question: Should people count on social security for their complete retirement income?
- Question: If nothing is created to reform social security, what can current 25-year-olds expect to receive from the program in retirement benefits?
- Question: How large is the future quandary?
- Question: Are there definitive plans for reforming and modernizing social security?
There are no procedures in place to adjust benefits for people who are currently retired. In fact, benefits will continue to increase with inflation annually.
If you are within five to 10 years of retirement, you probably have nothing to worry about when it comes to receiving your scheduled Social Security benefits. Many reform plans protect scheduled benefits, such as cost-of-living hikes for near retirees, who are people aged 50 to 55 and older.
Social Security was never meant to be the single source of income for retirement. A comfortable retirement combines social security, pensions, and savings. Employed individuals should be setting aside money for their retirement personally and through employer-sponsored retirement plans.
It is very likely that those who are relatively new to or currently entering the workforce will see a significantly different Social Security system than what is in place now. When a 25-year-old reaches age 63 in 2042, benefits for all retirees could be reduced by 27 percent and might continue to decrease annually after that unless changes are made. Because living to be 100 years old will be more common for current 25-year-olds, their scheduled benefits could be decreased by 33 percent from the current planned levels.
Social Security is not sustainable long-term at current tax and benefits rates without substantial additions of supplementary revenue. Over the 75-year period, a massive and evolving shortfall will occur.
There are no current plans, but some guiding policies have been instituted for future Social Security reform:
- Use Social Security surplus only for retirees
- Process Social Security benefits for retirees and near-retirees
- Preserve Social Security’s survivor’s insurance and disability programs
- Do not allow the government to invest Social Security reserves in the stock market
- Design voluntary personal retirement accounts that are individually controlled to help expand Social Security
Changes will be less abrupt and smaller the sooner the problem is addressed. However, the scope of the Social Security dilemma spreads as time passes. Also, the alternatives for fixing it become more restricted. Confronting the problem now will enable younger workers preparing for their retirement more confidence in the future of social security.
If Social Security is not modified or reformed, payroll taxes will increase, the benefits will be cut for today’s younger workers, and substantial transfers from general funds will occur. The extra revenue required for younger workers retiring in 2043 would be equal to an increase in payroll tax rates of about 4.5 percent. After that, the amount would steadily rise, reaching an increase in the payroll tax rate of about 5.9 percent for workers planning to retire 2078, or about 50 percent more than the current rate.
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