Social Security’s Trustees project that the trust fund will be depleted in 2034. At that point, 71 million beneficiaries could face across-the-board Social Security benefit cuts of 23 percent if elected leaders fail to act.
With the retirement of baby boomers and lengthening life expectancies, programs critical to older Americans, such as Social Security, will come under significant strain in coming decades. Social Security’s Trustees project that the combined Old-Age and Survivors Insurance and Disability Insurance (OASI) trust fund will be depleted in 2034. At that point, 71 million beneficiaries could face across-the-board Social Security benefit cuts of 23 percent if policymakers fail to act.
Social Security is the primary source of retirement income for million of Americans. But without action, it will lack sufficient resources to pay for all of the benefits promised under current law.
Almost every American worker pays a dedicated payroll tax, which entitles them to benefits when they retire or become disabled. But as the population ages, fewer workers will be paying taxes to support each Social Security beneficiary, thereby endangering the program’s finances.
Understanding the importance of the Social Security program for low-income Americans is a critical aspect of reforming the program in a fair and equitable way.
In 2018, Social Security was responsible for lifting almost 22 million Americans out of poverty, nearly 15 million of whom were seniors age 65 and older.
Options for improving the financial outlook of Social Security’s retirement program include:
- Increasing payroll taxes. Raise the payroll tax rate from its current level of 12.4 percent (half paid by employees and half by employers) on wage earnings subject to the tax. In 2022, earnings up to $147,000 will be taxed.
- Raising the full retirement age. Propose increasing the retirement age above age 67 for younger cohorts to account for future gains in average longevity.
- Reducing initial benefits. Change the amount that retirees can receive when they first apply for benefits. Many proposals combine a reduction in benefits for high earners with an increase in benefits for lower earners. (This is known as “progressive price indexing.”)
- Adjusting benefits after retirement. Slow the growth of retirees’ benefits over time by changing the cost-of-living index. Many economists believe that Social Security currently uses an index that overstates inflation, so benefits grow faster than the true cost of living. They propose replacing the current index with chained-CPI, which is a more accurate measure of inflation. (That change would also apply to other inflation-indexed federal retirement programs and tax provisions.)
These proposals are intended to put Social Security’s finances on a long-term sustainable footing.
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