Social Security is set to announce a cost of living payout for recipients in the middle of next month. As it does so, two problems it has collided. Social Security payments support almost 70 million Americans. That figure is growing. The cost of living increase, which will be the largest in over a decade, accelerates the date when the fund runs out of money.
Based on how increases in costs of living increase work, Social Security payments will rise somewhere between 8% and 10%. This roughly matches the pace that the consumer price index has increased in the past several months.
The Trustees of the Social Security and Medicare trust funds recently made a new calculation about when the fund runs out of money. The Old-Age and Survivors Insurance Trust Fund, which makes payments for retirees and their survivors, will not be able to pay full benefits beyond 2034. The analysis says, “At that time, the fund’s reserves will become depleted and continuing tax income will be sufficient to pay 77 percent of scheduled benefits.”
The problem could worsen. Many economists do not believe inflation will cool. Interest rate increases by the Federal Reserve and the ongoing jump in the cost of essentials, including many foods, could keep the annual Social Security payment near 10%. That means the pace at which money is paid out may accelerate more as the date by which the fund is exhausted gets closer.
Additionally, the number of people over 65 continues to rise sharply. The 2020 Profile of Older Americans report indicates that 21.6% of Americans will be over 65 in 2040. That is up from 16% in 2019. This represents 81 million people.
The only way full Social Security payments can last beyond 2034 is for Congress to raise the tax on working Americans. The political pressure is not to do this. Increasing taxes paid by younger Americans to pay for older ones face resistance. To make matters worse, some members of Congress and politicians currently running for office want the payout to drop so the fund will be solvent longer.
Will people be paid Social Security benefits beyond 2034? Yes. However, these may be well below what people anticipate. That will have severe consequences. Some people have nothing to live on beyond these payments.
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