Should I Take Social Security Now Before It Runs Out of Money?
The perception that Social Security is “going broke” has been promulgated in the news media. It is, of course, not accurate. The hype scares people and causes some to draw benefits sooner than they otherwise would. Drawing benefits too early may end up costing them thousands of dollars over the long run.
What is Really Happening with Social Security
Social Security will never run out of money entirely because ongoing payroll taxes fund it. As long as people pay taxes on salaries and wages, they are paying into Social Security and Medicare. However, according to the Social Security Board of Trustees, the trust fund reserves (our emphasis) will be depleted by 2033, one year earlier than previously projected due to the COVID 19 pandemic and the 2020 recession. After that, income from ongoing payroll taxes will be sufficient to pay 76% of scheduled benefits.1
Again, Social Security will have enough money coming in to pay about 76% of projected benefits after 2033 when the reserve fund that has been making up the difference runs out. That still sounds scary. You may not know that the projection of a shortfall by 2034 was made back in 1983 when Congress made the last major change to shore up Social Security’s solvency. According to one expert, “That’s almost precisely what the actuaries were projecting more than 30 years ago. There’s no more of a Social Security funding crisis now than what was envisioned then after the 1983 changes were enacted."2
We will have to rely on Congress to implement a long-term fix, which they can do in several ways. On the revenue side, they can increase payroll taxes, increase the income threshold subject to payroll taxes, or increase the Medicare surtax. On the benefits side, they can increase the full retirement age, reduce benefits for the wealthy, or reduce COLA increases (cost of living adjustments). Other ideas include privatizing Social Security by having workers put their payroll taxes into IRA-like accounts and increasing taxes on benefits to high-income households. Congress could combine any of these ideas or even find a new funding source―it will take the will of Congress to get this done.