I review Social Security doomsday scenarios all the time. Most of them are dire, but all of them are prefaced “If Congress does nothing…”
While I read these reports with skepticism, they all have one thing in common: Unless Congress fails to act to bolster the Social Security Trust Fund, benefits will either be cut or payroll taxes will skyrocket to maintain current benefit levels.
“As the 2024 presidential campaign ramps up, candidates are facing pressure to pledge not to touch Social Security,” stated the Committee for a Responsible Federal Budget (CRFB) in a recent report.
“While this pledge is framed as ‘protecting benefits,’ it is – in reality – an implicit endorsement of a 23% across-the-board benefit cut in 2033, when the Social Security retirement fund becomes insolvent. In that year, annual benefits would be cut by $17,400 for a typical newly retired dual-income couple.”
While I can’t independently verify these estimates, I am well aware of the structural problems Social Security faces. More people are hitting retirement age as the Baby Boomer generation starts taking Social Security, And millions are signing up early at age 62, putting more strain on the system’s trust fund. As the average American gets older, that will put even more pressure on the system.
The numbers of retirees will continue to grow. That much is indisputable. The vast majority of these folks will want to tap into benefits that are annually adjusted for inflation because no 401(k)s offer this feature. And unlike 401(k) withdrawals, most Social Security benefits are tax free. This presents a political dilemma that few national politicians want to touch.
“The winner of the 2024 presidential election will face a Social Security trust fund rapidly approaching insolvency,” the CRFB adds. “The program’s Trustees project that the Old-Age and Survivors Insurance (OASI) trust fund will deplete its reserves by 2033, when today’s 57-year-olds reach the normal retirement age and today’s youngest retirees turn 72.”
What can be done? Congress can partially insulate the Social Security reform process by setting up an independent, blue-ribbon panel to examine the issue and make recommendations. Without a doubt, Congress needs to take a hard look at how to fund the system in an equitable manner.
“We can close the vast majority of Social Security’s funding gap by scrapping the payroll tax cap,” notes Social Security Works, a non-profit that advocates saving the system. “Currently, millionaires and billionaires make payroll tax contributions on only the first $160,200 they make in annual wages.”
At the very least, Congress should eschew the idea of privatizing Social Security. It’s a rotten idea that won’t ensure universal coverage and would raise costs across the board.