Every American worker — past, present and future — has a stake in the Social Security program. President Roosevelt signed the retirement safety net into law in 1935, and it has been a major source of post-work income for millions of Americans over the decades.
But Social Security is ailing. Most experts acknowledge the system is in financial trouble, but very few people can agree on what needs to be done to fix it.
Here's a look at what you need to know so you can be prepared for Social Security changes.
1. Social Security Trust Funds Might Run Dry by 2034
Social Security primarily provides income for two groups of people — retired people and those who are disabled. Trust funds have been established for Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI).
In recent years, the Disability Insurance Trust Fund faced a looming shortfall, but the 2015 Social Security Benefit Protection and Opportunity Enhancement Act helped provide funding to keep the program going through 2023.
The Old-Age and Survivors Insurance Trust Fund can pay full benefits until 2035. If you add both trust funds together, Social Security can pay benefits until 2034.
2. Benefits Could Begin to Ebb in 2034
Here's news that could spell trouble for the 1 in 3 Americans with $0 saved for retirement.
On its current trajectory, Social Security will begin to pay out diminished benefits in 2034. At that time, the program will only bring in enough revenue to pay 79 percent of benefits. That means that if you expect a benefit of $2,000 in 2034, you might only get $1,580 unless things change between now and then.
3. Social Security Makes Up a Large Portion of Retirement Income
Today's retirees are leaning hard on their Social Security payments. Almost 90 percent of Americans 65 and older receive Social Security benefits, and it represents about 34 percent of the income of the elderly, according to the Social Security Administration.
In June 2016, Social Security retirement checks averaged $1,348 a month. That won't buy you much. But, Social Security checks constitute at least half the income of 71 percent of elderly unmarried persons and 48 percent of couples. For 43 percent of singles and 21 percent of married couples, these checks represent 90 percent or more of total monthly income.
4. The Senior Portion of the Population Is Getting Larger
In 2035, the Old-Age and Survivors Insurance Trust Fund will no longer be able to meet its obligations. By that time, the number of Americans to have blown out 65 candles on their birthday cakes will be a lot larger than the number today.
As of January, about 48 million Americans were 65 years old or older. In 2035 — 18 years from now — that number will be above 79 million.
5. Social Security’s Cash-Flow Deficit Is Ballooning
Although Social Security's retirement program is said to be solvent through 2035, it actually has a cash-flow deficit right now. Payroll-tax revenues and taxation of benefits fund the program. Since 2010, the money flowing into the program has been less than the money paid out.
And the deficit is growing. Over the next decade, it will exceed $1 trillion, swelling the public debt. Even now, the Treasury Department has to raise cash above what it takes in every year just to pay the Social Security benefits that are owed.
6. Boomers Are Retiring in Droves
The growing number of retirees is a big source of Social Security's continuing deficits. Every day, 10,000 baby boomers turn 65, according to the Pew Research Center. Many of those boomers are dropping out of the workforce. This puts a strain on an already stressed system.
7. People Are Living Longer
The trend in America is longer life expectancies. If you were 65 in 1940, you could expect to live another 14 years, according to the SSA. If you are 65 today, count on 20. That's good news in many ways, but not for Social Security. Today's retirees collect their benefit for more years than retirees in previous generations.
8. Fewer People Are Being Born
Fewer Americans are entering the workforce to replace retiring boomers. That is big trouble for Social Security, as the program depends on younger workers paying taxes that support retirees. It's just another reason to worry about the future of Social Security — and to take the time to figure out how much money you need to retire before quitting work.
9. Fewer People Will Pay Into Social Security in the Future
Right now, 2.8 American workers are paying into Social Security for every person receiving benefits. This number is shrinking. By 2035, the number of workers paying Social Security taxes per each beneficiary will have dropped to 2.2.
You don't have to be a mathematician to see how this impacts the fund. With fewer people paying in and more people drawing benefits, the trust fund is depleted faster.
10. Your Social Security Taxes Might Rise This Year
If you make more than $118,500 a year, you're going to pay more in Social Security taxes this year. Last year, you only paid Social Security taxes of 6.4 percent on the first $118,500 of your income.
In 2017, that wage cap goes up. You'll pay Social Security tax on the first $127,200. And as politicians look for ways to fund the system's deficit, the wage cap might rise higher in the future.
11. Rich People Aren’t Paying More for Social Security
Although the wage cap is going up this year, it hasn't gone up that much. The new limit is $127,200. That means someone making 10 times that amount — $1.27 million — will not pay a dime extra in Social Security tax. Some have argued that leaving the nation's higher wage-earners exempt from the tax on earnings above a specific threshold is causing the Social Security system to lose out on money it desperately needs.
12. Social Security Benefits Might Be Cut
During the presidential campaign, then-candidate Donald Trump pledged not to cut Social Security benefits. Paul Ryan, speaker of the House, also has said he has no plans to reduce program benefits.
However, some members of the Republican Congress have said entitlement cuts are the best way to shore up the Social Security program. And Trump's nominee for budget director, Mick Mulvaney, has said changes to entitlement programs might be necessary to shore up the nation's finances.
13. The Retirement Age Might Be Increased
The full retirement age for Social Security benefits used to be 65. In 1983, it was bumped up to 67 for those born after 1960. But will it stay there?
Rep. Sam Johnson of Texas, the Republican chairman of the House Ways and Means Subcommittee on Social Security, introduced legislation to raise the retirement age to 69 for those born in 1968 and after.
14. Social Security Trust Funds Are Invested in Low-Yield Securities
Compounding interest can work wonders if your 401k is investing in higher-yielding stocks. However, Social Security trust funds must be invested in Treasury securities. Such securities are lower in risk than stocks, but their yields are also much lower. According to the SSA, the average of the 12 monthly interest rates for 2015 was 2.021 percent.
That rate actually beat the S&P 500, which only earned 1.38 percent in 2015. But in a typical year, stocks do much better. For example, the S&P returned 11.74 percent in 2016.
If you invested $100 in Treasury bills in 1928, your investment would be worth $1,988 today, according to figures from the New York University Stern School of Business. However, had you invested that $100 in the S&P 500, your investment would have grown to $328,645.87.
15. Investing Social Security Funds in Stocks Would Carry Risks
A new study by the Center for Retirement Research at Boston College looked at what would happen if up to 40 percent of the trust fund was invested in equities. It determined that a mixed stock-and-bond portfolio would likely result in improved finances for Social Security without the need to raise payroll taxes.
However, the study also noted that "equity investments would also expose the program to greater financial risk and potentially greater political risk."
16. The Social Security Administration Is Understaffed
Budget cuts already have hit the Social Security Administration. As a result, a hiring freeze was implemented in 2011. According to the Center on Budget and Policy Priorities, the cuts have "hampered SSA's ability to perform its essential services," including determining benefit eligibility and paying benefits accurately and on time.
For example, as of June 2016, more than 1 million disability cases were pending, the highest backlog in the history of the agency, according to Center on Budget and Policy Priorities. Claimants typically have to wait more than a year to get a case resolved.
17. The SSA Is Closing Field Offices
Budget cuts to the Social Security Administration also are causing widespread field office closures, according to the CBPP. Between 2010 and 2016, the agency closed 64 field offices and 533 mobile offices.
Such closures affect people's ability to apply for benefits, replace lost Social Security cards and report name changes, according to the CBPP.
18. Applying Early Can Cost You Money
When should you start collecting Social Security benefits? Perhaps you are worried about the future of Social Security, and want to take your benefit early to get what you can now. You can start your Social Security retirement benefits as early as age 62, but you will get a significantly lower benefit amount than if you wait until full retirement age.
According to the Social Security Administration, if your full retirement age is 66, your benefits will be:
- 25 percent less if you retire at 62
- 20 percent less if you retire at 63
- 13.3 percent less if you retire at 64
- 6.7 percent less if you retire at 65
So, remember the financial ramifications when you're trying to maximize your Social Security income.
19. Most People Don’t Have Private Pensions
Some people are lucky enough to work in a job with a defined benefit pension plan. However, 51 percent of workers in the private sector have no private pension coverage, according to the SSA.
20. Taxes on Social Security Benefits Are Increasing
The share of Social Security benefits that is taxed has risen dramatically in the past three decades. At one time, no more than 50 percent of benefits were subject to taxation. The limit was raised to 85 percent in 1994.
To make matters worse, the income thresholds used to determine taxation levels are not indexed for inflation. That means the tax burden will grow, according to the Congressional Budget Office. It projects that "income taxes paid on Social Security benefits will rise from 6.5 percent of those benefits in 2014 to more than 8 percent by 2024 and more than 9 percent by 2039."