So much is written/discussed/screamed about regarding the Social Security trust fund running out by…name the date – it keeps changing! I think most recently I heard 2034. Does that mean Social Security will no longer be paid?
No, but if Congress doesn’t get in gear, there could be some cuts for retirees. Bigger ones for those retiring in 10 years or more.
First, a reminder: Eighty percent of Social Security benefits are paid by current workers’ FICA taxes. The other 20% is paid by the Social Security trust. So, even if the trust runs out and Congress is unwilling to raise general taxes to make up the shortfall, that means current recipients could lose 20% of their income.
Let’s hope that’s a worst-case scenario. Congress could easily raise at least some of that shortfall by taxing higher earners on all of their income, not just up to the current $160,200/year. They could impose tax benefits more than the current maximum of 80% of Social Security as currently stand. They could raise the full retirement benefit age.
For now, I’d assume that people who are 10 years or less away from claiming benefits will get what they expect, plus or minus some taxes. Those who are younger may want to factor their current estimated Social Security less 20%- 25%, but don’t discount it entirely. This makes up a decent percentage of expected retirement income.
Don’t forget, you are on the hook for preparing for your own retirement happiness. Social Security will only keep you from abject poverty. We must save the rest ourselves.
