About 50% of Americans 65 or older live in households that depend on Social Security benefits for half or more of their income, says the Social Security Administration. In a quarter of such homes, Social Security checks comprise nearly their entire income.
Since its inception, Social Security has hit periodic financial crises, and Congress has always resolved them with adjustments. Money Talks News’ recent article entitled “Will Social Security Run Out of Money?” takes a look at the problem and whether Social Security will be allowed to go broke this time.
A Social Security retirement check is funded from payroll taxes on Americans’ earnings over their working life and taxes on some Social Security retirement income. Employers and employees each contribute 6.2% of wages to the fund in 2022 (to an income maximum of $147,000). Self-employed people pay the entire 12.4%. A total of 40% of Social Security recipients also pay income tax on their benefits, money which goes back into Social Security’s trust fund. Here’s a look of the sources of Social Security’s revenue in 2021:
- Payroll tax: $980.06 billion (90.1%)
- Interest income: $70.1 billion in interest on invested funds (6.4%)
- Revenue from tax on benefits: $37.6 billion (3.4%)
Right now, the benefits being paid out are more than the money coming in, and Social Security’s $2.9 trillion trust fund has begun shrinking to cover benefit checks. If nothing’s done, Social Security’s trust fund will be fully drained in 2034, according to current estimates. However, that doesn’t mean the end of Social Security. Benefits wouldn’t stop. The system would continue to operate and payroll taxes would continue to fund benefits.
After 2034, Social Security’s annual income would still be enough to pay about 75% of benefits for the next retiring generations. Even in 2096, Social Security’s income would be able to pay 74% of its costs. Lawmakers also have a few options for responding to changing times, including:
- Increasing the payroll tax rate
- Eliminating the cap on taxable earnings above the current $147,000 to tap more of wealthy taxpayers’ income
- Folding state and local government employees into the system to broaden the tax base; and
- Gradually lifting the age at which recipients can claim benefits
To learn more about estate planning in the East Valley, Gilbert, Mesa and Queen Creek, schedule your free consultation with Attorney Jake Carlson by using one of the links above.
Reference: Money Talks News (Nov. 8, 2022) “Will Social Security Run Out of Money?”