Social Security Income is an important part of retirement plans for many. Unfortunately, there is also well-founded concern that Social Security may run out and no longer be around when the time comes to make use of the benefit. So will Social Security run out of money? If so, when will it happen? Will Social Security be available when you are preparing to retire?
First, let’s clarify some terms that are commonly used when talking about Social Security running out of money. Social Security as a whole is safe and there is no cause for concern regarding the majority of benefits paid by the program.
However, the conversation around Social Security running out of money usually refers to the Social Security trust fund running out of money. This is correct as currently experts project that the Social Security trust fund will exhaust by 2034, unless lawmakers make changes to the program.
That sounds bad. But what does it mean that the trust fund will exhaust its funds by 2034 and how could that affect your benefits? To answer this question we need to understand what the trust fund is used for.
Social Security benefits are paid for by the Social Security tax. This tax accounts for the majority of benefits paid out to beneficiaries. The tax does not cover all of the benefits paid, however, and this difference is where the trust fund comes into effect.
The Social Security trust fund is used to make up for shortfalls between funds paid into Social Security through taxes and funds paid out through benefits. If Social Security needs to pay more out in benefits than what has been collected through the Social Security tax, the trust fund covers the difference.
Over time, projections indicate that the amount drawn from the Social Security trust will increase until the fund is exhausted in 2034. At that time, Social Security recipients may see about a 25% reduction in their benefits. This means that even after the Social Security trust fund has been exhausted in 2034, Social Security recipients will continue to receive as much as 75% of their benefits.
It’s also important to remember that all of this is subject to change should lawmakers pass legislation to make changes regarding how Social Security funds are generated. Should lawmakers pass an increase to Social Security taxes, these issues could be resolved completely without future recipients needing to prepare for decreased benefits.
All of this means that there are certainly changes coming to the Social Security program, but they are not as drastic or severe as some may make it seem when they claim that “Social Security will be gone.” If lawmakers will take action to correct the shortfall that will occur around 2034 when the trust fund is exhausted, recipients can continue to rely on this important support well into the future.
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