Why is Social Security short of money?
The Social Security trust fund is in financial difficulty and the agency has said it could reach its exhaustion date in about 12 years, but that doesn’t mean it will be completely cash-strapped.
Indeed, the Social Security Administration (SSA) pays money to the Social Security Trust through the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act (SECA). Since the trust is funded by payroll taxes, it is constantly paid out and generates new income.
But while it does not go bankrupt, the SSA has said it may be forced to dramatically cut benefits for retirees and other beneficiaries if Congress does not find a solution by 2033.
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SOCIAL SECURITY BENEFITS COULD BE REDUCED BY MORE THAN EXPECTED
Main reasons why ASS is in financial difficulty
As the SSA nears its scheduled exhaustion date, it has highlighted several factors that make it necessary to reduce benefits or increase taxes in order to maintain the program. In fact, there are some factors that even speed up the process of reaching the date earlier than expected. Here are just a few:
In 2020, COVID-19 spread across the United States, causing millions of Americans to leave the workforce as businesses were forced to close. Unemployment rate peaked at 14.8% in April 2020 before falling back to 4.8% in September, according to government data.
With so many Americans out of work, income taxes have fallen and the SSA has said it has lost a significant amount of tax revenue. This prompted the administration to postpone the depletion date of the fund a year earlier than expected, saying it would be able to make timely payments to the Old Age and Survivors Insurance (AVS) trust fund until. ‘in 2033, according to this year’s Trustees Report. At that time, Social Security will only be able to pay 76% of the planned benefits.
“The data and projections presented include administrators’ best estimates of the effects of the COVID-19 pandemic and the 2020 recession, which were not reflected in last year’s reports,” the SSA said. “The finances of both programs have been significantly affected by the pandemic and the recession of 2020.”
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SOCIAL SECURITY PAYMENTS SIGNIFICANTLY INCREASING IN 2022, A NEW INVOICE COULD SEND HIGHER PAYMENTS
Baby boomers – once the largest generation in the United States, according to Statista – are entering retirement age. Baby boomers include those born from 1946 to 1964, which means that even the youngest of this generation will be 57 in 2021. According to a study by the Stanford Center on Longevity, baby boomers have lagged behind the generations. previous experiences in retirement planning and savings. In addition, life expectancy in the United States has fallen from just under 70 years in 1960 to almost 79 years in 2015. All of this weighs heavily on social security funds.
âSocial Security and Medicare both face long-term funding gaps in terms of currently planned benefits and funding,â SSA said. “Both programs will experience cost growth significantly higher than GDP growth until the mid-1930s due to the rapid aging of the population.”
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SOCIAL SECURITY CHECKS WILL INCREASE AT THE HIGHEST RATE IN NEARLY 40 YEARS
Congress introduces bill to temporarily repair SSA
Congress Democrats recently presented a bill, Social Security 2100: A Sacred Trust, which aims to address some of these issues. Among other things, it would increase the tax limit subject to social security taxes to $ 400,000, from $ 142,800 today. It would also push back the date when SSA would need to cut benefits to 2038, giving Congress more time to find a permanent solution.
âLawmakers have many policy options that would reduce or eliminate long-term funding gaps for Social Security and Medicare,â the SSA said. “Lawmakers should address these financial challenges as soon as possible. Acting as soon as possible will allow for a wider range of solutions and allow more time to gradually introduce changes so that the public has enough time to prepare.”
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