It was expected in 2018 that roughly 63 million Americans would receive approximately $1 trillion in Social Security benefits, according to the Social Security Administration. For many retirees, Social Security is a key component of how they afford retirement. For those receiving Social Security, about 48 percent of married couples and 69 percent of unmarried people have Social Security making up more than 50 percent of their income. For 44 percent of unmarried people on Social Security, the benefits make up essentially all of their income. If Social Security ran out of funds it would mean huge changes for all retirees — but for some people, it would be catastrophic.
The program, officially known as Old-Age, Survivors, and Disability Insurance, has been paying benefits since it began in 1935. Today, there’s a lot of concern and confusion around Social Security. People wonder, “When will Social Security run out?” This is because the Social Security board of trustees has been reporting annually that the program’s reserves will run out in 2034.
It could be too soon to worry yet, though. In fact, the 2018 report from the board of trustees stated that in 2017 income exceeded expenditures for the program. There are more facts to help reassure you that this critical safety net will be there for you throughout your retirement.
Social Security Checks Went Up This Year
In 2019, Social Security checks increased 2.8 percent over 2018. This is the annual cost of living increase, or COLA, which keeps the buying power of your Social Security check from eroding. This is the highest increase since 2012 when checks rose 3.6 percent.
The COLA Is Determined by the Actual Cost of Living
Most years, Social Security recipients get an adjustment in the amount of money they receive. This cost of living adjustment is not set by Congress or the president but is tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers. When things cost more at the store, Social Security recipients get more money in their check, so they can continue to maintain their standard of living as prices rise.
At-Home Spouses Can Still Collect
If you did not work but your spouse did, or if you earned significantly less than your spouse, you might be able to claim Social Security benefits based on your spouse’s work record. A spousal benefit is equal to half of the higher-earning spouse’s benefit. If the higher-earning spouse dies first, the lower-earning spouse, if at full retirement age, can then collect their larger benefit for the rest of their life.
Here’s an example. Jack and Jill are married and are both turning 66 this year, which is their full retirement age. Jill’s Social Security benefit at full retirement age is $2,500 per month. Jack stayed home with the children and then worked a series of lower-paying jobs, so his benefit is just $800 per month. Jack is entitled to a spousal benefit, which will increase his $800 benefit to $1,250 per month, which is half of Jill’s.
You Can Get More Money by Waiting
Retirees are eligible to collect Social Security benefits at their full retirement age. For someone born in or before 1937, their FRA is 65. It then increases by two months for each year, and for someone born between 1943 and 1954, it is 66. It then increases again by two months for each year, and for someone born in 1960 or later, it is 67.
You can begin collecting your full benefits at your full retirement age, but you don’t have to. If you delay starting your benefits, you’ll get more money each month. Each year you wait after your FRA, your benefit will increase between 5.5 percent and 8 percent, depending on when you were born, until age 70. Your check won’t increase (except for the COLA) once you begin taking benefits, so starting at your full retirement age or before means your check will be lower forever. There isn’t a huge reason to delay past age 70, though, since your benefit won’t increase by waiting until after that age.
Social Security Was Never Designed as a Retirement Savings Plan
The program is designed so that current workers pay in and former workers withdraw. Social Security is not like an IRA or a 401k, where you put money into it while you’re working, and then you take that money out after you retire. This might seem like a minor distinction, but it means that, unless the government decides people don’t have to pay into it anymore, there will still be funds to pay retired workers and you won’t have to worry as much about Social Security running out.
We're Not Locked Into the Present Formula
There are several ways to change the Social Security program so that benefits would not need to be reduced when the reserve is projected to be depleted. As with any budget, Congress just needs to either put more money in or take less money out. There are a few ways to do this.
Adjusting the Retirement Age Can Keep Social Security on Track
When the Social Security system was started in 1935, the average life expectancy in the United States was 61. The retirement age has remained at roughly 65, but now the life expectancy for someone born in 2018 in the U.S. is 76 for men and 81 for women. Moving the retirement age higher as life expectancies increase will help preserve Social Security benefits.
Employees and Employers Could Pay More Than the Current 6.2 Percent of Income Into Social Security
The cost of Social Security is split between employers and employees. Each party pays 6.2 percent of a worker’s pay into the system. This amount could be increased so that either the employer or the employee (or both) is paying a little bit more. This would increase the amount of income the program takes in, enabling more benefits to be paid out.
Some Income Isn't Subject to Social Security Tax — but It Could Be
In 2019, Social Security tax will be paid on the first $132,900 in income. After that level, no Social Security tax is withheld or due. Raising this threshold would be a relatively easy way to increase the amount of money going into the Social Security system.
Social Security Operated at a Surplus in 2017
Social Security had an annual surplus of $44 billion in 2017, which brought the total trust fund reserves to $2.89 trillion at the end of that year. Although the reserves are still expected to be depleted by 2034, the Social Security program could reduce its operational costs and extend the amount of time the reserves will last.
Even if Nothing Changes, Retirees Will Still Get Paid
For the last several years, the Social Security Administration has estimated that the trust fund reserves will be depleted in 2034 if no changes are made to the program. Even if that happens, the program can still pay 79 percent of benefits until 2092, at which point it will be able to pay 74 percent, because money will still be flowing into the program from current workers. As long as workers and employers continue to pay into the system as required, benefits will still be paid to those who are eligible. Increasing the amount of money that comes in or increasing operational efficiencies will help maintain the level of benefits that are currently paid.
This scenario is not unlike your household budget and savings account. You pay your bills from the income you get from your job. If you get an unexpected bill or have to take a cut in pay, you might have to dip into your savings (the trust fund reserves) to pay your bills in full and on time. If your income then increases again, or you are able to reduce your expenses, you will once again be able to pay your bills from your income, even if you have exhausted your savings.
Social Security Is Separate From the General Fund
Funds that are collected by Social Security cannot be diverted and spent on other things. Social Security benefits are paid from the reserves of the OASDI trust fund. Employers withhold money from their employees’ paychecks and send that money to the government, earmarked for Social Security. The money is invested in Treasury securities, which are redeemed when needed to pay benefits. Because the revenues are collected in advance of their expenditure, they build up reserves so that when the number of retirees increases, there is enough money to pay their benefits.
Social Security Has Had Deficits in the Trust Fund Before
In 1982, the OASDI Trust Fund’s reserves were depleted and the fund was running a deficit. The trust fund borrowed money from the Hospital Insurance Trust Fund, which funds Medicare. The money was repaid by 1986. Reforms were enacted in 1983 that adjusted benefits and taxes to address the financing problems.
Higher Interest Rates Can Increase Reserves
OASDI and Medicare’s Hospital Insurance Trust Fund earn interest on their accumulated reserves. As interest rates increase, the amount these funds will earn will also increase.
An Influx of Undocumented Immigrants Won't Threaten Social Security
Undocumented immigrants are actually helping out the Social Security Administration because they cannot collect benefits. Those who work and pay taxes are paying into the system, adding to the reserves. According to New American Economy, in 2016, undocumented immigrants paid $13.3 billion into Social Security while not collecting benefits.
Despite this good news, there are still unsettling truths about Social Security and its future — find out what they are.
More on Social Security
- Answers to Your Top 6 Social Security Questions
- Find Out If You’re Maximizing Your Social Security Benefits
- 20 Best Places to Live on Only a Social Security Check
- Watch: Don’t Get Caught in These Social Security Scams
We make money easy. Get weekly email updates, including expert advice to help you Live Richer™.
About the Author
Karen Doyle is a personal finance writer with over 20 years’ experience writing about investments, money management and financial planning. Her work has appeared on numerous news and finance
websites including GOBankingRates, Yahoo! Finance, MSN, USA Today, CNBC, Equifax.com, and more.