I’m an Economist: Why Social Security Is in Crisis — and What You Can Do
Written by
Gabrielle Olya
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Molly Sullivan
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The Social Security trust fund is projected to run out by 2033 — just eight years from now. When that happens, retirees could see their benefits slashed by more than 20%. According to economist Daniel Altman, author of the High Yield Economics newsletter, the crisis is accelerating — and Americans need to prepare.
GOBankingRates spoke with Altman to understand what’s driving the shortfall and what it means for current and future retirees.
Why Social Security Benefits May Shrink
The main issue [causing the Social Security crisis] is the [size of the] baby boomer generation moving into retirement.
In 2010, baby boomers started to reach age 65. If you’re good with math, you will have already concluded that the share of people over 65 had been roughly constant at about 12.4% for the previous two decades. But today it’s 18% — an increase by half.
There are more and more retirees per active worker in the economy, which means that there will be less money to go around for benefits. The trust fund that made up for this shortfall will be exhausted less than a decade from now.
What Happens When the Trust Fund Runs Out
The trust fund is projected to run out in 2033. At that point, Social Security will become a pay-as-you-go system [benefits will be funded solely by current payroll taxes], and benefits for retirees will be less than 80% of what they are now.
Expect Smaller Checks Without Reform
We have two choices: reduce benefits or raise taxes.
Reducing benefits seems more likely, and this can mean later retirement ages, smaller cost-of-living adjustments and means-testing, which would cut benefits for high-income retirees.
How To Prepare For Possible Benefit Cuts
People who are near retirement age now will probably receive the benefits they expect. Middle-aged and younger workers may not be able to count on Social Security to provide a decent standard of living in retirement. They will almost certainly need other sources of income.
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