Unsettling Truths About Social Security in 2019

Every American worker — past, present and future — has a stake in the Social Security program. President Franklin D. 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. In fact, many Americans hope to live comfortably off of Social Security checks alone.

However, Social Security is ailing. Most experts acknowledge the system is in financial trouble, but few people can agree on what needs to be done to fix it. That’s why it’s so important to learn what you can expect from Social Security in the future — including some unpleasant possibilities.

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 and Disability Insurance.

In recent years, the Disability Insurance Trust Fund faced a looming shortfall, but the Social Security Benefit Protection and Opportunity Enhancement Act of 2015 helped provide funding to keep the program going through 2023.

The Old-Age and Survivors Insurance Trust Fund can pay full benefits until 2034. If you add both trust funds together, Social Security can pay benefits until 2034.

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Here’s news that could spell trouble for the nearly 14 percent of Americans with nothing 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.

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 33 percent of the income of the elderly, according to the Social Security Administration.

In June 2018, Social Security retirement checks averaged $1,413 a month. Unfortunately, that won’t buy you much. But among elderly beneficiaries, Social Security checks constitute at least half of the income of 69 percent of unmarried persons and 48 percent of couples. For about 44 percent of singles and 21 percent of married couples, these checks represent 90 percent or more of total monthly income.

In 2034, the Old-Age and Survivors Insurance Trust Fund will no longer be able to meet its obligations. By that time, the number of Americans who have blown out 65 candles on their birthday cakes will be a lot larger than it is today. As of 2018, about 49 million Americans were 65 years old or older. In 2035, that number will be above 79 million.

Although Social Security’s retirement program is said to be solvent through 2034, 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.

The growing number of retirees is a big source of Social Security’s continuing deficit. Every day, approximately 10,000 baby boomers turn 65, according to the Pew Research Center. Many of those boomers are dropping out of the workforce. This puts strain on an already stressed system.

Find Out: 10 Reasons Today’s Retirees Are Relying on Social Security

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 about 20. That’s good news in many ways, but not for Social Security. Today’s retirees collect their benefits for more years than retirees in previous generations.

The number of births in the U.S. in 2017 was the lowest figure in three decades, according to a report from the National Center for Health Statistics. As Americans retire from the workforce and need to be replaced, that could potentially mean 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.

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 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.

You might wind up paying more in Social Security taxes this year. Last year, Americans only paid Social Security tax on the first $128,400 of their income. In 2019, that wage cap is higher. You’ll pay Social Security tax on the first $132,900. And as politicians look for ways to fund the system’s deficit, the wage cap might rise higher in the future.

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Although the wage cap is higher this year, it hasn’t gone up that much. The new limit is $132,900. That means someone making 10 times that amount — $1.33 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.

During his presidential campaign, then-candidate Donald Trump pledged not to cut Social Security benefits. Nancy Pelosi, the speaker of the House, also has said she intends to protect program benefits.

Some Republican members of Congress have said entitlement cuts are the best way to shore up the Social Security program, however. And Trump’s budget director, Mick Mulvaney, has said changes to entitlement programs might be necessary to shore up the nation’s finances.

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?

Some policymakers have suggested raising the retirement age as a way to save money and reduce spending, but so far no changes have been made.

Read: 30 Reasons It’s Hard to Retire at 65

Compounding interest can work wonders if your 401k is investing in higher-yielding stocks. Social Security trust funds must be invested in Treasury securities, however. 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 2018 was 2.9 percent.

In a typical year, stocks tend to do much better. For example, the S&P 500 returned 11.96 percent in 2016. However, this isn’t always the case. In 2018, the S&P 500’s total return was -4.38 percent.

Despite the market’s rough year in 2018, stocks are generally a bigger money maker over time. If you had invested $100 in Treasury bills in 1928, your investment would be worth more than $2,000 today, according to figures from the Stern School of Business at New York University. Had you invested that $100 in the S&P 500, however, your investment would have grown to $382,850 by 2018.

A 2016 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.

The study did note that “equity investments would also expose the program to greater financial risk and potentially greater political risk.”

Budget cuts already have hit the Social Security Administration. In fact, a hiring freeze was implemented in 2011. According to the Center on Budget and Policy Priorities, the cuts “hampered SSA’s ability to perform its essential services,” including determining benefit eligibility and paying benefits accurately and on time.

For example, as of April 2018, roughly 1 million disability cases were pending. Claimants typically have to wait more than a year to get a case resolved.

Budget cuts to the Social Security Administration have also caused widespread field office closures, according to the CBPP. Between 2011 and 2017, the agency closed at least 64 field offices, and it has closed over 500 mobile offices since 2010.

Such closures affect people’s ability to apply for benefits, replace lost Social Security cards and report name changes, according to the CBPP.

Related: Ask Yourself These 10 Questions Before Signing Up for Social Security

When should you start collecting Social Security benefits? Perhaps you’re 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’ll 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 67, your benefits will be:

– 30 percent less if you retire at 62
– 25 percent less if you retire at 63
– 20 percent less if you retire at 64
– 13.3 percent less if you retire at 65
– 6.7 percent less if you retire at 66

So, consider the financial ramifications when you’re trying to maximize your Social Security income.

Some people are lucky enough to work in a job with a defined benefit pension plan. But 50 percent of workers in the private sector have no private pension coverage, according to the SSA.

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 has risen to 85 percent.

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 projected 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.” There’s good news about Social Security, too —learn these reassuring facts about the program.

Click through to read about the ways people survived before having Social Security.

More on Social Security

• 20 Best Places to Live on Only a Social Security Check
• Women Rely More on Social Security but Get Less of It — Here’s How You Can Plan Ahead
• These 10 States Could Be Ruined If Cuts Are Made to Social Security
• Watch: Don’t Get Caught With These Social Security Scams

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Gabrielle Olya contributed to the reporting for this article.