I know that is a broad and concerning statement, and one intended to cause the reader to investigate further. Actually, the new research report from Boston College’s Center for Retirement Research provides us with fresh and actionable information.
If current spending, without tax adjustment, continues, in 2034, benefits will need to be reduced by 25%. To cure that problem, an increase of 2.66% in payroll social security taxation will need to be implemented. Otherwise, in 2034, benefit adjustments will become necessary.
The current actual cost per payroll is now about 17%, an increase would push the taxation to 20%. Depending on your employment situation, either you are currently paying the entire amount (self-employed) or sharing it with your employer (50/50). However, the tax is being paid, it will need to be increased.
In 1983, when congress authorized the National Commission on Social Security Reform, many early estimated the trust fund to run out of money as early as the late 1990s. Of course that didn’t happen, the reason is simple, wages increased greater than the percentage of retiree’s income paid by Social Security. More taxation paid into the trust fund has allowed the date of exhaustion to be moved farther.
There is the possibility that 2034 may not be an accurate estimate, one factor would be a worsening economy. If the economy fell into a recession (or depression) the trust fund estimates would need to be adjusted.
The other more possible option would come from the political side, a presidential administration could push for larger and broader benefits, stretching the trust fund even thinner. Expanding benefits is probably unlikely, since it would have a direct collision with increased taxation, something all politicians wish to avoid.
To put things into perspective, our economy is huge and growing. The full benefit of all aspects of the Social Security program equals to only 1% of our national Gross Domestic Product (GDP). Based on that small percentage, the future seems brighter than it has been in a long time. By dealing with the deficit issue now, the long term problem of Social Security funding is manageable.
Here is the link to the Boston College report: http://crr.bc.edu/briefs/social-securitys-financial-outlook-the-2016-update-in-perspective/