Social Security isn’t Going Away. But Big Changes are Coming

Many consumers have begun to assume that Social Security won’t be around by the time they need to tap into it. That’s simply not true. Yet it’s increasingly clear that Social Security will represent a smaller source of your retirement income than you may have once assumed.

Although the nearly $3 trillion Social Security Trust Fund is now operating at a deficit (as retirees collect more than non-retirees contribute), it is projected to have enough cash on hand to pay 100% of the benefits due to retirees through 2034. If nothing has changed by then, benefits will be likely be around 76% of current levels (adjusted for inflation). 

Don’t look for the government to simply cut Social Security benefits sharply in 2034. That would be too great a shock to the system. Instead, the government is likely to do what it has already been doing in recent years: responding too slowly to the impacts of inflation. By messing around with inflation assumptions, Social Security benefits grow more slowly than our actual costs of living. Another way that Social Security Trust funds will likely be shored up: raising the amount of income for FICA purposes to $250,000. As of now, that figure is $142,800.

Unfortunately, we will be seeing a steady flow of "Social Security is Going Bankrupt" stories for the next few years. That's because Congress tends to be slow to make major changes to the program. For example, funds in the Social Security Trust got alarmingly low in the early 1980's, at which time Congress approved comprehensive Social Security reform in 1983. I hope they don't wait until the last minute this time around. Raising that income-subject-to-FICA threshold would ideally be done sooner rather than later. Failing to act soon will lead more retirees to opt start their Social Security benefit as soon as possible (i.e. age 62). And that leads to a much smaller benefit for the rest of someone's life.  

Net/net: Social Security isn’t going away. But benefits may not keep up with inflation, and paychecks may soon see a bigger bite from FICA.