The looming Social Security funding shortfall, projected to impact benefits by 2035, requires a multi-faceted solution. Possible measures include raising payroll taxes, subjecting more wages to payroll taxes, gradually raising the retirement age, reducing benefits for higher-income retirees, and investing a portion of the trust in appreciating assets. A combination of these strategies will likely be necessary to address the shortfall effectively.

Transcript:

Austin, we’ve discussed the looming Social Security funding shortfall, with the program being unable to pay seniors 100% of their own income as early as 2035.

So my question is, what’s going on and what are the solutions to potentially solve this?

Yeah, you know, we’ve talked a lot about this issue, and frankly, it’s going to have to be a multi-pronged approach.

There are a couple of ways to solve this, but if you push on any one of these items too far, it creates all sorts of knock-on effects.

And legislatively, frankly, it’s unpassable.

Congress is going to expect, you know, a couple of ways to solve this, three or four inputs to maybe solve this shortfall, not come from any one source.

So we’re going to talk about five, but we must emphasize that it will probably be a little bit of a few of these to solve this shortfall.

So number one is raising the payroll tax for Social Security.

It’s currently 6.2 percent for employers and 6.2 percent for employees, or 12.4 percent total.

So if payroll tax were raised immediately by under four percent, you know, 3.6 percent, about 1.8 percent to each employer and employee, the government, by some forecasts, could pay Social Security benefits through 2097.

Now, that’s according to the Center for Retirement Research at Boston College.

No one likes raising taxes, though, so maybe instead of 3.6, we choose about half of that and we pull from some of these other fixes instead.

So number two is you could subject more wages to payroll taxes.

Currently, and we’ve talked at length about this, only wages up to $168,000 are subject to that Social Security payroll tax, and above that, it drops.

So you could raise that level to $200,000, $250,000, or frankly, you could just eliminate the cap altogether and tax all wages at that 6.2 percent.

Again, not popular.

But this is related to the billionaire problem that we have discussed in the past.

Number three, you could gradually raise the retirement age.

Currently, people are eligible to start receiving Social Security at 62, but Americans on average are starting to live longer.

And it might just be, you know, we might just have to be realistic and recognize that Social Security was established in a different era when the average life expectancy was lower.

And therefore, the projected payouts for seniors were lower on a per-person basis than what we now experience going forward.

Number four is you can reduce benefits for those with higher retirement income.

This is probably the least controversial on this list.

Many people who are in retirement, some also have additional income.

They might choose to continue working. They might have part-time jobs.

They might have income from other investments or real estate properties, whatever the case may be.

So recognizing that there are some individuals who do not need those Social Security benefits at the same level and reducing the benefits for them does appear to be a pretty viable approach to save those funds for those individuals who are in greater need of those funds.

And number five, and this is certainly the riskiest, but invest a portion of the trust in investments like stocks or other appreciating assets.

Now, this is risky, but potentially effective and does take portions of the trust today and not only keeps pace, but hopefully beats inflation over the long run.

So five different ways to fix this Social Security funding shortfall, all varying levels of complexity.

We don’t mean to oversimplify them here.

We expect to see a little bit of each of them maybe being put into the ultimate solution here to solve that 2035 shortfall we’ve talked about.

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