Latest news with #SocialSecurityTrusteesReport
Yahoo
a day ago
- Business
- Yahoo
Social Security Has a $67 Billion Problem. Should Current and Future Retirees Be Concerned?
The Social Security program is beginning to pay out more than it's bringing in. Social Security benefits could be cut by 23% in 2033 if the deficit continues at its current rate. Multiple factors are contributing to the Social Security deficit, including more retirees, longer life expectancy, and government inaction. The $23,760 Social Security bonus most retirees completely overlook › Social Security is one of America's most valued and important social programs, but unfortunately, it's facing a significant problem: The cost of the program is exceeding how much it's bringing in. Given the deficit that Social Security had in 2024, should current and future retirees be concerned? For most current retirees, no. However, if you're a current worker or approaching retirement, it's an issue worth keeping an eye on, because potential changes to Social Security will eventually affect you. Let's look at the $67 billion issue that Social Security is facing. To better grasp Social Security's issue, it's important to understand how Social Security's funding works. Social Security is primarily funded through payroll taxes. The current rate is 12.4%, with both employers and employees paying 6.2% each (self-employed people are responsible for the full 12.4%). This money is then put into the Social Security Trust Fund, which consists of two parts: The Old-Age and Survivors Insurance (OASI) Trust Fund, and the Disability Insurance (DI) Trust Fund. The OASI program is responsible for paying benefits to retirees, their families, and survivors of deceased recipients. The DI program is responsible for paying benefits to disabled workers and their families. In theory, working-age people pay into the system to support current retirees, with the understanding that other working-age people will do the same for them once they're in retirement. The Social Security Administration's (SSA's) 2025 Social Security Trustees Report noted that the Social Security program cost $1.485 trillion in 2024, while only bringing in $1.418 trillion. That resulted in a $67 billion deficit for the year. According to the report, the OASI trust fund could be depleted by 2033, at which point Social Security would only be able to pay 77% of its expected benefits. A recent study by the Senior Citizens League (TSCL) estimated that about 21.8 million retirees rely solely on Social Security for income. So a 23% drop in benefits is far from ideal. At the current rate of depletion, the Social Security Trust Fund could be underfunded by more than $25 trillion through 2099. Without changes, Social Security would need to cut benefits by about 23% beginning in 2034. There are a few factors contributing to the Social Security deficit, but here are four key ones: An influx of retirees: Baby boomers are retiring in large numbers without enough workers in the workforce replacing them (and paying into the Social Security program). People are living longer: You don't stop receiving Social Security until you pass away, so as people live longer, they collect benefits longer, increasing Social Security's costs. Income for the lower and middle classes is stagnant: Only income up to a certain amount is subject to Social Security payroll taxes ($176,100 in 2025). This means that as high-earners begin earning more, they're paying less of their income into the program. Less interest earned on reserves: Social Security reserves are put into Treasury bonds to earn interest. However, interest rates were historically low for a considerable period, limiting the amount of interest Social Security could earn on its reserves. The good news is that this isn't the first time Social Security has faced funding issues, and the federal government was able to address the problem. The bad news is that it's going to take bipartisan government action to resolve the funding shortfall, and there haven't been many encouraging signs of this happening in the immediate future. In the meantime, current workers should prepare for the worst and hope for the best. This could mean increasing contributions to retirement accounts, investing more actively, and preparing for Social Security to potentially account for a smaller portion of your retirement income than previously expected. Regardless of what happens, it's always better to be overprepared than underprepared. If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. Social Security Has a $67 Billion Problem. Should Current and Future Retirees Be Concerned? was originally published by The Motley Fool
Yahoo
17-06-2025
- Business
- Yahoo
Planning to Retire in the 2030s? Read This Before You Collect Your First Social Security Check.
Social Security is projected to run out of money by 2035, according to the latest report. It's important for those within a decade or so of retirement to know where things stand, beyond the headlines. The worst-case scenario might not be as bad as you think, and there's plenty of time to fix the problem. The $23,760 Social Security bonus most retirees completely overlook › You may have heard that Social Security isn't exactly on the best financial footing, and that's true. Although the Social Security trust funds have trillions in reserves right now, the reality is that Social Security is paying significantly more money to beneficiaries than it is taking in, and the deficits are expected to get far worse in the coming years. In fact, the latest estimates from the Social Security Board of Trustees project that the combined trust funds for the Old Age and Survivors Insurance and Disability Insurance trust funds will be depleted by 2035 unless something is done. While this might sound like an emergency, especially if you're planning to retire in the next decade, it's important to take a step back and put things into perspective. So, here's what Social Security running out of money could mean for you, and what is the most likely scenario. For sake of argument, let's say that the latest trustees' report projection happens, and Social Security's trust funds completely run out of money in 2035. At the end of 2023, the latest year for which we have final data, the Social Security trust funds had a total of about $2.8 trillion in reserves. The program took in a total of $1.35 trillion in income between payroll taxes, taxes on certain Social Security benefits, and interest earned on the reserves, and paid out about $1.39 trillion -- a roughly $40 billion deficit that is withdrawn from the trust funds. But the key thing to emphasize from that last paragraph is that most of Social Security's benefits are paid from income coming into the program, not from the reserves. So even if the deficits get much larger and the trust funds are depleted in 2035, there will still be payroll and other tax revenue coming in. In fact, the latest projections found that even if the trust funds are allowed to run out of money entirely, incoming revenue will be able to cover 83% of scheduled benefits. In other words, in a worst case scenario, if you were expecting a $2,500 monthly Social Security retirement benefit based on your work record (you can view an estimate for yours by logging in at you would still receive monthly checks of $2,075 even if Social Security was completely out of money. One big reason Americans are nervous about the Social Security shortfall is that it's been a known problem for a long time. I've been writing for The Motley Fool since 2011, and the Social Security Trustees Report from that year found that the trust funds would be depleted by 2036, just one year later than the current estimate. So why hasn't anything been done? The short answer is that the ways to fix Social Security are politically divisive, and quite frankly, with a decade or more of financial runway, those in power simply haven't made Social Security reform a priority. To be fair, there have been some significant tweaks, such as eliminating the "file and suspend" loophole a few years ago, but nothing major has been done to extend the program's solvency. Having said that, it's worth noting that we've seen a similar situation play out before. In the early 1980s, Social Security was just a few months away from running out of money, and the Social Security Amendments of 1983 helped stabilize the program for the next few decades. Just to name one provision, this round of reforms is why the full retirement age has gradually risen from 65 to 67 over the past couple of decades. The bottom line is that history shows us that something will be done to bolster Social Security's financial situation, even if it happens at the last minute. And while the exact reform package remains to be seen, it's also worth noting that virtually nobody is talking about benefit cuts for those currently receiving payments, or those who are close to retirement age now. If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. Planning to Retire in the 2030s? Read This Before You Collect Your First Social Security Check. was originally published by The Motley Fool
Yahoo
27-04-2025
- Business
- Yahoo
Has Congress Stolen Funds From Social Security? The Stunning Reveal...
In February, more than 52 million retired-worker beneficiaries collected an average Social Security check of $1,980.86. This might not sound like much, but Social Security income has proved to be indispensable for a majority of retirees. In each of the last 23 years, national pollster Gallup has conducted a survey to gauge how reliant retirees are on the income they receive from America's leading social program. What these surveys have shown is that 80% to 90% of retired workers need their monthly check, in some capacity, to cover their expenses. Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue » However, playing a key role in laying a financial foundation for America's aging workforce doesn't mean Social Security's own foundation is on solid footing. For the last four decades, the program's long-term financial outlook has been worsening. Though there are numerous factors worth blaming, what's arguably the most commonly pointed to scapegoat is Congress. For 85 years, the Social Security Board of Trustees has published an annual report that details the financial health of the program. Anyone can review these reports, which categorize how every dollar in income is collected, as well as where those dollars are spent/end up. But what tends to garner more attention with the annual Trustees Reports is their forward-looking estimates. The Trustees take into account a number of dynamic variables, such as fiscal and monetary policy, along with a laundry list of demographic factors, to predict how financially sound Social Security will be over the long term (defined as the 75 years following the release of a report). Since 1985, every Social Security Trustees Report has warned of a long-term funding obligation shortfall. In simpler terms, projected income to be collected over the next 75 years won't be enough to cover outlays, which includes benefits, inclusive of cost-of-living adjustments (COLAs), and to a far lesser extent administrative expenses to oversee the program. This long-term funding deficit reached an estimated $23.2 trillion in 2024. To make matters worse, the Trustees are forecasting an exhaustion of the asset reserves for the Old-Age and Survivors Insurance Trust Fund (OASI) by 2033. The OASI is the fund that pays monthly benefits to retired workers and survivor beneficiaries. If this excess cash that's been built up since inception is completely depleted by 2033, retired workers and survivor beneficiaries can see their monthly checks slashed by up to 21%! With a better understanding of the more immediate and long-term challenges that await Social Security, let's return to the question at hand: Is Congressional theft to blame? If you were to peruse social media message boards, there's a very high probability you'll find posts that blame lawmakers for stealing funds from Social Security. In many instances, these posts claim that America's leading retirement program would be fine if the stolen money was returned, with interest. While this is a somewhat popular online opinion, it's a perfect example of a popular opinion being completely wrong. The likely reason some people falsely believe Congress is misappropriating Social Security's funds is because they don't fully understand what happens to the program's asset reserves. Social Security's asset reserves represent the excess income collected since inception that wasn't paid out as benefits or used to cover administrative expenses. At the end of 2020, the combined asset reserves for OASI and Disability Insurance Trust Fund (DI) peaked at $2.908 trillion. However, Social Security's asset reserves aren't just sitting in a vault collecting dust. Based on the Social Security Act, which was signed into law 90 years ago this upcoming August, the program's asset reserves are required by law (I repeat, required by law) to be invested in special-issue, interest-bearing, government bonds. The investment holdings of the OASI and DI are public information that's updated on a monthly basis. For example, as of the end of March, the OASI and DI had a combined $2.678 trillion invested in various bonds and certificates of indebtedness, with an average interest rate of 2.535%. This average interest rate is going to fluctuate based on the Fed's monetary policy, along with the various maturities of the program's special-issue bonds. Though this example has been used previously, Social Security investing its asset reserves in special-issue government bonds is no different than John or Jane Q. Public purchasing a certificate of deposit (CD) at their local bank or credit union. If you purchase a CD at a bank or credit union, they're not going to put your cash into a lock box. The bank is going to use your capital to generate a higher interest loan that'll net it a profit. Just because the cash you gave the bank to purchase the CD isn't sitting in their vault doesn't mean they've stolen your money. When the CD matures, you're paid in full. It's the same story with the Social Security's asset reserves. The government can use this capital for a variety of funding sources, including defense spending, healthcare, and so on. Regardless of where the federal government spends its money, every interest payment and maturity of these special-issue bonds has been met, without fail, since Social Security's inception. Long story short, every cent in Social Security's investment holdings matches up with the program's asset reserves since inception -- and interest is being paid on what's borrowed. If this funding source were disallowed, Social Security would be in far worse financial shape. If theft isn't the answer, you might be wondering what's to blame for Social Security's financial malaise. The correct answer lies with a number of ongoing demographic changes. Some of these are well-known, while others remain under-the-radar or are largely misunderstood. For example, you're likely aware that baby boomers have been retiring for more than a decade. Not enough new workers are entering the labor force to take the place of boomers, thusly leading to a decline in the worker-to-beneficiary ratio. Further, Americans are living notably longer in 2025 than they were when the first Social Security retired-worker benefit was mailed in January 1940. To be blunt, Social Security was never designed to offer payouts for multiple decades to retirees. But not all demographic shifts are as easy to spot. For instance, the total fertility rate in 2023 -- a measure of how many children is born per woman within a specific age range of the population -- dropped to an all-time low of 1.62. The fertility rate needs to be 2.1 for a population to replace itself and remain stable. With new births dropping for a variety of reasons, the worker-to-beneficiary ratio is likely to be weighed down in the years to come. We've also witnessed a near-halving in net legal migration into the U.S. since 1997. Legal migrants serve an important purpose for Social Security's financial well-being. Most migrants tend to be young, which means they'll spend decades in the labor force contributing via the payroll tax, which is the primary funding mechanism for Social Security. The net migration rate is currently running well below where it needs to be to support America's leading social program. Rising income inequality is an issue, as well. In 1983, approximately 90% of all earned income, which includes wages and salary but not investment income, was subject to the 12.4% payroll tax. But as of 2023, data from the Social Security Administration shows that only 83% of earned income was subject to the payroll tax. Wages and salary for high earners have grown at a faster pace than the National Average Wage Index, which is what dictates the upper bound of the payroll tax earnings cap. Lastly, lawmakers can be blamed -- but not for theft. Rather, Congress foots the blame for not finding a middle-ground solution to strengthen Social Security. The longer lawmakers kick the can, the costlier it's going to be to "fix" Social Security. If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. Has Congress Stolen Funds From Social Security? The Stunning Reveal... was originally published by The Motley Fool Sign in to access your portfolio
Yahoo
26-04-2025
- Business
- Yahoo
Why Dave Ramsey Thinks Social Security Is a ‘Mess' — And What You Can Do About It
With Social Security facing serious challenges, Dave Ramsey is sounding the alarm. In a recent blog post on Ramsey Solutions, the personal finance expert didn't hold back, calling the system a 'mess' and urging Americans to take their retirement planning into their own hands. With growing uncertainty around the program's long-term stability, many are left wondering what role Social Security will realistically play in their future. Be Aware: Find Out: Here's why Ramsey believes Social Security is falling short and what experts say you can do to stay ahead. Social Security was never meant to fully fund retirement. It was designed as a supplement, not a safety net you can live off entirely. But according to a survey conducted by The Senior Citizens League, 27% of seniors have only Social Security benefits as income. The Social Security Trustees Report projects that the combined Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds to be depleted in 2035. If nothing changes, this could result in a 17% benefit cut in 2035. Ramsey pointed to this looming shortfall as just one sign that the system is in trouble. He argued that the imbalance between the number of workers paying into the system and the number of retirees drawing from it is unsustainable. With people living longer and fewer workers supporting more retirees, the math doesn't add up. Read Next: Given these challenges, Ramsey advises individuals to take personal responsibility for their financial futures. He recommends building retirement savings through consistent investing and not relying solely on Social Security. Robert R. Johnson, Ph.D., CFA, CAIA, professor of finance at Heider College of Business at Creighton University, doesn't agree with everything Ramsey recommends, but agrees on the importance of building retirement savings. 'Planning so that Social Security benefits can be considered the 'dessert' of your retirement spending is very prudent,' Johnson said. 'One certainly wants to err on the side of accumulating more wealth than less when it comes to your retirement nest egg.' To avoid over-relying on Social Security, here are some strategies to consider. 'The earlier you start saving for retirement, the more time your money has to grow through compound interest,' said Jake Falcon, founder and CEO at Falcon Wealth Advisors. He suggested contributing regularly to tax-advantaged retirement accounts, such as 401(k) plans, IRAs or Roth IRAs, as well as a health savings account (HSA), which can be used for medical expenses. Take advantage of employer matching contributions to your retirement plan. 'This is essentially free money that can significantly boost your savings,' Falcon explained. 'I can't stress this enough: If your employer offers a benefit this lucrative, you almost can't afford not to take it.' A diversified investment portfolio can help you better manage risk and provide more stable returns over time. 'Consider a mix of stocks, bonds, real estate and other assets to mitigate risk,' Falcon explained. 'Most importantly, you want to make sure your investments are lined up with your financial plan.' Consider adding additional sources of income, such as rental properties, dividends from investments or part-time work in retirement. 'Many retirees are still earning some sort of wage. It can be a great to stay active, as well,' Falcon added. Healthcare costs can be a significant expense in retirement. 'Consider what your plan for long-term care is and leverage health savings accounts to cover potential medical costs,' Falcon said. 'Life circumstances and financial markets change, so it's important to review your retirement plan regularly and make adjustments as needed,' Falcon explained. 'I would not make adjustments based on market fluctuations — instead, adjust your plan when your life changes.' More From GOBankingRates 6 Used Luxury SUVs That Are a Good Investment for Retirees 7 Tax Loopholes the Rich Use To Pay Less and Build More Wealth 7 Overpriced Grocery Items Frugal People Should Quit Buying in 2025 How Much Money Is Needed To Be Considered Middle Class in Every State? This article originally appeared on Why Dave Ramsey Thinks Social Security Is a 'Mess' — And What You Can Do About It
