How Secure is Your Social Security

future of social securityEarlier this year, the Congressional Budget Office announced that the Social Security Trust Fund was secure until 2035. But, that was pre-pandemic. Due to the COVID-19 world and the tremendous amount of layoffs and furloughs, all of those people have not been paying Social Security payroll tax into the system.1 There has been a large reduction in the amount of money going into the Social Security Trust Fund since March. There has been a recent analysis by the Congressional Budget Office that the trust fund will run out in 2031. At that point, the estimate is that incoming Social Security payroll taxes would fall about 25% short of funding the potential obligations and liabilities.

By 2031, roughly 75 million people will be eligible for full retirement social security benefits when all baby boomers are 67 years old.2 Despite the looming financial crisis with the national debt and pandemic spending by the US government, social security reform is not at the top of anyone’s legislative priority list. This could prove to be a real problem down the road.

What does this mean for you?

It seems highly unlikely that you would suddenly have a 20-25% reduction in your social security benefit. Could they add additional means testing where more of your benefit gets taxed as ordinary income? I think that’s pretty likely. If you’re under 50, it’s really likely you will see some changes. Some have talked about adjusting the benefit to favor lower income workers, adjusting the cost of living formula, increasing the portion subject to income taxes, and raising the full retirement age

Any one or combination of these solutions is more likely to happen for those who are under 50. Those who are currently 50-60 might see some changes, but those are unknown. For those over 60, it’s highly unlikely that any major changes would happen to your current social security benefit structure.

There’s little point in worrying about the future of the Social Security program, as we can’t predict the future. Instead, a financial plan for retirement should provide for increasing income from investments to help offset potential social security changes down the road.