The Social Security Trust Fund is struggling financially and the agency said It may reach its depletion date in about 12 years, but that doesn’t mean it will run out of money completely.
That’s because the Social Security Administration (SSA) draws money for Social Security trusts through the federal Insurance Contribution Act (FICA) and the Self-Employment Contribution Act (SECA). Since the trust is funded through payroll taxes, it is constantly being paid for and generating new revenue.
But unless it breaks down, the SSA said it could be forced to cut benefits significantly for retirees and other beneficiaries if Congress doesn’t find a solution by 2033.
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Key reasons why SSA struggles financially
As the SSA approaches its projected reduction date, it outlines a number of factors that make it necessary to cut benefits or increase taxes to keep the program running. In fact, some factors are speeding up the process of reaching the date earlier than previously expected. Here’s something:
In 2020, COVID-19 spread across the US, resulting in millions of Americans leaving the workforce as businesses were forced to close. Unemployment rate peaked at 14.8% Before going back down in April 2020 4.8% in SeptemberAccording to government figures.
With so many Americans out of work, income tax declined, and the SSA said it lost a significant amount of tax revenue funding. This prompted the administration to move the fund shortfall date to a year earlier than expected, being able to make timely payments to the Old-Age and Survivors Insurance (OASI) Trust Fund by 2033 as of this year. trustee report. At that point, Social Security would be able to pay only 76 percent of scheduled benefits.
“The data and projections presented include trustees’ 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 2020 recession.”
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Baby Boomers – Once the Largest Living Generation in America, According to statista – Entering retirement age. Baby boomers include those born from 1946 to 1964, meaning even the youngest of this generation will turn 57 in 2021. Baby boomers lag behind generations in retirement planning and savings, a study shows. Stanford Center on Longevity. Additionally, life expectancy in the US has increased from only 70 in 1960 to about 79 in 2015. All of this is taking a toll on Social Security funds.
“Both Social Security and Medicare currently face a lack of long-term funding under prescribed benefits and financing,” the SSA said. “Both programs will experience cost increases exceeding GDP growth by the mid-2030s due to rapidly growing populations.”
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Congress introduces bill to temporarily fix SSA
Recent Congressional Democrats introduced a bill, Social Security 2100: A Sacred Trust, which aims to address some of these issues. Among other items, it would increase the tax limit subject to Social Security taxes to $400,000, up from $142,800 today. It would also move the date the SSA would be required to cut benefits until 2038, giving Congress more time to come up with a permanent solution.
“MPs have a number of policy options that will reduce or eliminate long-term funding shortfalls in Social Security and Medicare,” the SSA said. “MPs should address these financial challenges as quickly as possible. Taking action sooner will allow a wider range of solutions to be considered and provide more time to phase in the changes so that the public has no time to prepare. Have enough time.”
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