The United States’ Social Security system is both beloved and neglected.
As it stands, the program — which provides benefits to retirees, the disabled and impoverished, as well as children of deceased parents — is facing insolvency, and if the government doesn’t act, beneficiaries will see a 20% cut to what they’re owed by 2035, according to the Social Security Administration’s trustees report earlier this year.
Social Security is a pay-as-you-go system, meaning today’s workers are paying for current retiree benefits, and they’ll eventually receive benefits that future workers are paying. There are two trust funds that support the system, and any extra reserves in a given year go into those accounts (though, when there’s an annual deficit, that same money comes out to fill the hole).
Most presidential candidates have not touched on the future of Social Security in their campaigns, and politicians occasionally resuscitate solutions that have been discussed for decades: raising the full retirement age, which is when people can claim 100% of their benefits, or increasing taxes, for example. Both are controversial, however, as they inadvertently hurt a segment of the population — raising the retirement age keeps benefits away from elderly people who may need it now, and increasing taxes can become a burden to young workers, critics argue. There’s also a proposal to raise the ceiling of the payroll tax cap, so that high-earners pay more into the system. Experts say Congress has never let Social Security run out of money, but it will take its time to decide what to do to fix it.
For some Americans, Social Security is a supplement to other sources of retirement income, such as their own savings in a 401(k) plan or an employer-backed pension. For other Americans, the benefit is a lifeline. Social Security benefits make up the majority of retirement income for 61% of elderly beneficiaries, and a third of them rely on the program for 90% or more of their income, according to the Center on Budget and Policy Priorities, a governmental budget policies think tank in Washington, D.C. The average monthly retirement benefit was slightly more than $1,400 in July, though the benefit payment depends on work and wage history.
The Trump administration reportedly mulled plans to cut the payroll tax, at least temporarily, to help the economy in the wake of a potential recession. The cut would have put more money in Americans’ paychecks, but could have hindered the future of Social Security and Medicare — which rely on that payroll tax. A similar plan was implemented during the Obama administration after the financial crisis, but the government paid the employees’ share of the tax thereafter (increasing the deficit but leaving the program unharmed). No details were shared about what a possible cut would look like, including how long it would last or how much would be shaved, and President Trump has since denied it is under consideration.
Still, not all Americans are certain they’ll ever see a Social Security benefit. The notion of politicians saying the system is in trouble, or advisers saying clients shouldn’t calculate benefits into their future plans, hurts citizens more than helps, said Teresa Ghilarducci, a labor economist and director of The New School’s Schwartz Center for Economic Policy Analysis and the Retirement Equity Lab.
“That is a campaign,” she told MarketWatch. “There is a vested interest to ignore and belittle Social Security,” she said.