Social Security will be changing drastically in the next 20 years, whether you like it or not. According to Social Security’s Board of Trustees, the federal program’s reserves will be depleted by 2034. Payroll taxes will only cover about 75 percent of benefits paid out after that.
Will benefits be cut, or will lawmakers come up with another plan to make Social Security self-sustaining for another generation? See what could happen.
Click through to find out what Social Security will look like by the time millennials retire.
Scenario No. 1: Benefits Could Be Cut
Option No.1 is a tough pill to swallow for many Americans who have spent their entire lives paying into the program, but by 2035 there is a real possibility that the benefits could see a serious reduction. In fact, according to the 2017 annual report of the trust funds’ Board of Trustees, if no major changes are made to deal with the current trust fund shortfall, benefits will need to be slashed by 20 percent.
Scenario No. 2: The Social Security Payroll Tax Rate Could Rise
Scenario No. 2 comes into play if benefits aren’t cut — and that means a bigger burden on taxpayers across the nation. By increasing the Social Security payroll tax rate, the 6.2 percent that you see coming out of your paycheck — or full 12.4 percent if you’re self-employed — would have to rise to fund the program.
Scenario No. 3: More Wages Could Be Taxed
Instead of increasing the percentage of taxes people are paying, this scenario would increase the amount of earnings that are subject to being taxed. Currently, only the first $128,400 of someone’s salary is taxed. Taxing higher salaries would also help fund the program.
Scenario No. 4: The Full-Retirement Age Could Rise
Scenario No. 4 might be the most likely option, simply because it doesn’t involve Congress passing a tax increase. This scenario would raise the full retirement age, which would translate to a longer time in the workforce for younger generations. Right now, you can collect full retirement benefits at age 67 if you were born after 1960 — but by 2035, that number might be higher.
Click through to keep reading about Social Security myths you need to watch out for.