Social Security stands as an integral part in the lives of Americans and especially for the retired population. As reported by The Motley Fool, “In each of the previous 23 years, pollster Gallup questioned retirees about their reliance on Social Security income and discovered that 80% to 90% require their monthly check, in some capacity, to meet their expenses.”
Therefore, it is important for the government to ensure that the Social Security funds never dry up. Already under Donald Trump’s presidency, there have been multiple changes in how Social Security operates and that has affected a huge section of the American population. Now, with fears of the Social Security funds drying up by 2033, there is a genuine concern regarding the validity of the statement.
It should be noted here that it is not possible for Social Security to go bankrupt or become insolvent going by its present funding structure. As reported by the Motley Fool, “Although Social Security checks run the risk of being reduced in the future (a topic I’ll touch on a bit later), there’s no question Social Security will still exist in 2033 (and beyond), and be doling out payments to eligible beneficiaries.”
To understand why it is impossible for Social Security to go bankrupt, it is necessary to understand how it is funded. There are three ways that Social Security generates its income. These include, the 12.4% payroll tax that is earned on income, the interest that comes from OASI’s and Disability Insurance Trust Fund’s (DI’s) asset reserves, and the tax that is levied upon the Social Security benefits of certain recipients.
However, though the chances of Social Security going bankrupt is nil, the chances of a change in the payout schedule, which includes annual cost-of-living adjustments (COLAs), are there in 2033.
As reported by The Motley Fool, “According to the 2024 Trustees Report, if the OASI’s asset reserves are exhausted by 2033, a sweeping benefit cut of up to 21% may be necessary for retired workers and survivors in order to sustain payouts through 2098 without any further reductions. Slashing benefits by 21% in eight years would be no walk in the park for those who rely on Social Security as their primary income source.”
However, it should be noted here that the Congress has generally come to the rescue of Social Security at the last moment to ensure that the citizens keep getting its benefits. For instance, a similar situation like the one discussed here had occurred back in 1983 and without the intervention of the Congress the funds would have suffered significantly by 2023.
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Fortunately, “The Social Security Amendments of 1983 were passed by Congress and signed into law by then-President Ronald Reagan. The program’s last sweeping bipartisan overhaul gradually increased the payroll tax on earned income and the full retirement age, as well as introduced the now-hated tax on benefits. It offered a blend of solutions that raised revenue and reduced long-term outlays.” as The Motley Fool reported.
Therefore, while the retired population of America should not worry about their Social Security benefits stopping in the near future, they should make sure to keep a track of all the changes that are happening in the Social Security system so that they continue to receive the benefits.
