Social Security Ain’t Going Broke!

by | Oct 12, 2021 | 401k & Retirement Planning, Personal Planning

Social Security Status: Ignore the Headline Hype

Social Security issued its Annual Trustees report on August 31. The report discussed the long-term financial status of the program. However, different media sources report the same data in very different ways. Some might find the headlines worrisome. So let’s dig beneath the headline a bit to get to the truth.

Below are two excerpts from different publications:

“Social Security Will Be insolvent in 12 Years…..The fiscal crisis looming over Social Security is no longer a distant threat. The national pension system will be insolvent by the time workers now in their mid-50s are ready to retire.”

“Social Security won’t be able to pay full benefits by 2034, a year earlier than expected due to the pandemic. Social Security will have to cut benefits by 2034 if Congress does nothing to address the program’s long-term funding shortfall”

There is a big difference between “insolvency” (bankruptcy) and “cutting benefits.” So which is it? Let’s leave out the possible political bias in both these viewpoints and focus on the glaring error of omission in both stories.

Errors of Omission

Social security is currently funded in two ways: ongoing payroll taxes and trust fund reserves. Ongoing payroll taxes (currently 12.4% is split between employee and employer on the first $142,800 of wages). The social security trust fund is the accumulated reserve that has built up over time. If Congress does nothing, the trust fund will be gone by 2034. Even if the trust fund goes to “0” that does not mean the system will be bankrupt. Projected payroll taxes will still be sufficient to cover 78% of program benefits. That number has been consistently in the 75%-80% range for a long time. This is likely the worst-case scenario. Hardly bankrupt or insolvent.

Most analysts believe Congress will one day find the courage to make changes necessary to ensure the benefit does not degrade. The fix could involve several adjustments such as: lower payouts, means testing, raising or suspending the threshold for exempted wages, raising payroll taxes, cutting benefits, or increasing the age you can begin collecting. There are a lot of levers that can be pulled. It will just require some political courage, which is in very short supply these days. Eventually they’ll stop kicking this can down the road.


Jerry Matecun – Founder, President
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