“By 2034, those (nearly $3 Trillion of) reserves will be depleted and Social Security will no longer be able to send it its full schedule of benefits,” according to the latest annual report by the trustees of Social Security and Medicare, which was released on June 5, 2018.  Although not surprising, it is nevertheless a warning that things could change drastically for Seniors unless something is done about it.

Here is a link to a Wall Street Journal article on the subject:

https://www.wsj.com/articles/social-security-expected-to-dip-into-its-reserves-this-year-1528223245

Good News/Bad News

The good news is that there are nearly $3 Trillion of reserves and employment is at record levels, so there is enough money to pay 100% of all benefits for the next 16 years.  Thereafter, there will still be money coming in from the SS Payroll Tax such that benefits will still be paid at some lower percentage.  This means that Social Security is not on life support and benefits will still be paid out.  This all assumes that nothing is done politically to shore up the Social Security fund – there is still plenty of time for politicians to do something.  As we have seen recently, it seems that politicians typically act only at the 11th hour, when there is a cliff they are about to go over.  We haven’t arrived at the cliff yet, though we may be able to see the cliff.

The bad news is that there will be a cliff and something needs to be done.  Some ideas currently out there:

• Increase the maximum income level subject to the 6.2% Social Security Tax.  In 2018, that maximum is $128,400, meaning that wages above $128,400 are not subject to the SS tax.  If that maximum was bumped up higher, that would help, but it would be another tax on the wealthy, which at some point might not be a viable political option.
• Increase the tax rate from 6.2% to something higher than that.  Remember that employers match what you are taxed at so that a 1% tax increase on you is a 2% increase in funding to the SS Trust.
• Increase the minimum age to receive Social Security.  People live longer now (if they don’t get hooked on smoking or opiates or if they don’t engage in gang activity), so maybe 70 is the new 65.  The minimum age for Full Retirement benefits will be pushed up as it is for the next several years.
• Make benefits subject to means testing, meaning wealthier retirees may not be able to collect their full benefits if they otherwise have enough money to live on.  Forfeited benefits would go back to the trust fund to be given to the needier.   Warren Buffet is an advocate of means testing.

IMO

I believe something will eventually be done politically to ensure 100% of Social Security benefits are paid.  The AARP is a very tough political lobby and they will make sure their constituents won’t suffer.  Any political resolution will occur at the 11th hour, with some deadline that needs to be addressed.  I believe there will be a combination of a small increase in the tax itself coupled with an increase in the maximum income subject to the tax.  I don’t see an increase in the age brackets nor do I see means testing.

The more important thing to keep in mind is that you need to save money for your retirement.  You cannot rely on Social Security to 100% fund your retirement.  Prepare for the worst (Save!) and hope for the best (new laws to shore up Social Security).