Understanding the Future of Social Security
Why You Can Still Count On It
With all the headlines about the potential depletion of Social Security, it’s understandable to feel concerned about whether you’ll receive the benefits you’ve been counting on. While it’s true that the Social Security system faces some challenges, there’s reassuring news: the majority of your benefits are secure, even in a “worst-case” scenario. Let’s look at what’s happening and why there’s no need to panic. THE TRUTH ABOUT SOCIAL SECURITY FUNDING Most of the money used to pay Social Security benefits comes from payroll taxes, not from a “trust fund” that might eventually run dry. Both workers and their employers contribute to Social Security through the Federal Insurance Contributions Act (FICA), each paying 6.2% on wages. So, even if the trust fund reserves are depleted — currently projected for 2035 — Social Security would still pay out a significant portion of scheduled benefits using ongoing payroll tax revenues. Even if no changes are made to the current system, Social Security could still cover about 83% of benefits in 2035, gradually declining to 73% by 2098, according to the 2024 annual report of the Social Security Trustees. Although a reduction in benefits may sound concerning, it’s important to clarify that this doesn’t mean Social Security will vanish altogether — a common misconception. WHY LEGISLATIVE ACTION IS LIKELY Given the importance of Social Security for millions of Americans, especially retirees who rely on it as a major source of income, lawmakers are highly likely to step in to prevent even these partial reductions. Several policy options could help extend the solvency of the program. For instance, a modest increase in payroll taxes or raising the Full Retirement Age (FRA) could significantly reduce the funding gap without dramatic cuts to benefits. According to the 2024 Social Security Trustees’ report, a 3.33% increase in payroll taxes would close the 75-year funding shortfall. Raising the FRA or making slight adjustments to benefits for future retirees could also address the issue. WHAT THIS MEANS FOR YOU For current Social Security recipients, there’s no immediate cause for concern. The system is expected to continue paying full benefits for at least another decade, and even in the event of reductions, you would still receive a significant portion of your scheduled benefits.
financial plan. Many policy changes — such as increases in payroll taxes or adjustments to benefits — are likely to focus on future earnings, meaning they would have a smaller impact on those already retired or close to it. A REALISTIC PERSPECTIVE The headlines may be alarming, but Social Security is not on the brink of collapse. Even in the worst-case scenario, most benefits will still be paid. Moreover, the likelihood of legislative action to protect and sustain the system is high, so you can reasonably expect to receive the benefits you’ve earned. The key takeaway is that while Social Security’s future may involve some adjustments, there’s no need for panic. Your financial plan can adapt to these changes, and with ongoing adjustments to tax policies and benefits, the system will likely remain a crucial part of your retirement income. Social Security benefits are considered an integral part of McBeath Financial Group’s comprehensive financial planning process. However, we are not affiliated with the Social Security Administration and do not provide specific estimates of Social Security benefits. Please note that Social Security rules and regulations are subject to change. Always consult with your local Social Security office before making any decisions based on the information provided in this article. Data and projections referenced herein are sourced from the 2024 Annual Report of the Social Security Trustees and the U.S. Social Security Administration.
For a full, comprehensive guide of our 10 Questions for a Successful Retirement, request the FREE report using the website below or scan the QR code!
Page.McBeathFinancialGroup.com/ 10-questions-for-retirement-report.html
For those nearing retirement or still working, the potential changes are worth considering but shouldn’t lead to drastic changes in your
2 McBeathFinancialGroup.com
Made with FlippingBook Ebook Creator