What Does The Future Of Social Security Really Look Like?
By David Dierking
The mid-term elections have brought a lot of issues back to the forefront of the political discussion lately. A lot of it centers on how we’re going to pull ourselves out of the current recession. While financial topics like taxes and government stimulus tend to dominate much of the conversation, one matter that has resulted in much discussion in the past has been relatively quiet recently – the future of Social Security.
Everybody’s heard horror stories about what is happening or is going to happen to the Social Security program. It’s about to go bankrupt. It won’t be there at all when you retire. Your taxes are going to be raised to fund it. Let’s take a step back and try to separate some of the facts from the fiction that is out there right now.
Is Social Security going bankrupt?
The short answer is not any time soon. Based on what the system is currently taking in and paying out, the fund would be depleted around the year 2040. Both the government and the public have a high level of interest in making sure that the system can be sustained over the long term so expect significant changes to be made in order to keep it funded. As long as the government continues to collect payroll taxes, the system will never truly go bankrupt but benefits would likely look a lot different than they do today.
What changes can be made to keep it solvent?
The Social Security system is going to need to figure out a way to maintain the surplus necessary to keep paying out scheduled benefits. The main ways to do this are to either increase payroll taxes or decrease benefits. The government has committed to preserving benefits for current or near retirees but what happens for younger workers is still to be determined. The other solution is to try to increase the return earned on current funds by moving some of it into the stock market or by offering workers the option of self-investing a portion of their own accounts, otherwise known as privatization.
Will it be privatized?
This idea was originally proposed by President George W. Bush during a State of the Union speech. While privatization still remains one of the options on the table, the idea has never really gained much traction. Likewise, the option of moving some of the trust fund over to the stock market to try to increase returns hasn’t really gone anywhere either due to the recession and the recent performance of the market.
How will these potential changes affect me?
For anybody over the age of 50, the answer is they won’t. As mentioned already, the government has said it will keep planned benefits for this group unchanged. Younger workers though can likely expect either a tax increase or a cut in scheduled retirement benefits at some point in the near future. While a complete bankruptcy of the system is highly unlikely, the impending deficit of the system is very real and will need to be addressed sooner rather than later so smaller changes now can produce bigger results in the future.
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