Social Security has been around for nearly 90 years. In 1935, Congress established a new initiative to provide retirement income and the general welfare of those 65 years and older. Today, it’s the most popular government program in existence. Still, the latest projection by the Social Security Administration (SSA) indicated funds expect to run dry by 2035, at which time the government would only be responsible for paying 79% of promised benefits.
So, could Social Security run out of money? A recent survey by Harris Poll for Nationwide said 70% of adults believe it will be broke. Gen Xers led the way at 78%, followed by millennials (71%) and baby boomers (64%). Experts say the concerns are unfounded despite the fast-paced rise in consumer prices.
Are Inflation Fears Causing Unfounded Worries About Social Security?
The trust fund used to pay retirement benefits has been running low for decades. Director of economic policy at the Bipartisan Policy Center, Shai Akabas, told CNBC the SSA would not stop benefit checks and said any such fears were unwarranted. Yet, inflation increased by 9.1% in June. Next year, the Cost of Living Allowance (COLA) could rise to the highest level ever. For millions of retirees today, an expected 10% increase is a good thing.
Still, as the entitlement initiative pays out more, the fund might dwindle faster than projected. Workers and employers each contribute 6.2% of wages to the program, while self-employed individuals pay 12.4%. In addition, the government earns interest on the money; in 2021, it added $70.1 billion.
The SSA has financial resources as long as people work and contribute to Social Security. Two factors are likely to impact its future:
- Prices continue rising for an extended time
- A recession causes significant layoffs
If unemployment goes up, income into the SSA goes down. It appears companies are preparing to let people go as inflation and declining sales hit their bottom line. On Thursday, August 11, jobless claims grew by 14,000 to 262,000. It has increased for five of the past six weeks.
Experts Say It Won’t Happen
Director of the Center of Retirement Research at Boston College, Alicia Munnell, suggested lawmakers could solve the problem by raising payroll taxes or the Social Security payroll tax limit above $147,000. Others have suggested increasing the eligibility age beyond the current 67 years old. Akabas said the problem isn’t such an easy fix that politicians can wait until the last minute to patch it.