Does Social Security have enough money to cover all benefits in 2023?

It’s no secret that Social Security is approaching a funding crisis that could threaten the financial security of millions of Americans who depend on it. But many people aren’t sure what’s actually causing the problem or when recipients will be affected. So it’s time to clarify that.

Below we will answer both questions. We will also discuss what the government can do to avert a major disaster and how workers and seniors can prepare for what lies ahead.

Surprised person with hands over mouth looking at laptop.

Image source: Getty Images.

Why is Social Security in trouble?

Social Security has three main sources of funding:

  • Social contributions : Workers pay these taxes on the first $147,000 they earn in 2022 and the first $160,200 they earn in 2023. This provides the bulk of the program money.
  • Taxes on social security benefits: Seniors with high enough incomes may pay federal taxes on a portion of their Social Security benefits.
  • Interest earned on social security trust funds: The government invests any money from the above two sources that is not needed for the payment of benefits in government guaranteed securities. These earn interest over time, and that interest helps pay for future Social Security benefits.

This system worked well for several decades, but things started to go wrong when the baby boomers started to retire. This has led to more seniors applying for benefits than ever before. And since subsequent generations were smaller, there were fewer workers left to pay the payroll taxes for them.

For this reason, payroll taxes and social security payroll taxes have not been sufficient to cover all scheduled benefits, and trust funds have slowly dwindled. Costs have started to exceed total revenue in 2021, and if nothing changes, the program will eventually reach a point where trust funds will be depleted and it won’t be able to pay all the benefits it owes. Fortunately, this moment will not arrive in 2023.

The latest report from the Social Security Trustees estimates that trust funds will be fully depleted by 2035. After that, they will only be able to pay about 80% of expected benefits. This percentage will drop to 74% by 2096.

The good news here is that Social Security doesn’t go away even if the worst happens. It will still continue to collect money each year through payroll taxes and social security contributions. But you might not get as much as you expected.

Is there a way to avoid benefit reductions?

It is possible that the government will avoid cuts to Social Security benefits by modifying the program in some way before the trust funds are completely depleted. Politicians on both sides of the aisle understand that this is a serious problem that needs to be solved, but so far they have not been able to come together to solve it.

Some possible solutions include:

  • Raising or abolishing the ceiling on income subject to social security contributions
  • Raising the full retirement age (FRA), which determines when workers can claim their full social security benefits
  • Increase in the Social Security payroll tax rate, which is currently 12.4%, shared equally between the employee and the employer

The solution may include a combination of these things, or something completely different. For now, all we can do is wait and see what happens.

If you’re worried about how cuts to Social Security benefits might affect your financial security in retirement, try to reduce your reliance on it. Those who are still working can try to increase their personal savings, and those who are already retired might consider cutting back on expenses or taking on a part-time job to help their savings last longer.

It might not be what you want to hear, but right now it’s about the only thing we can do to prepare for the uncertain future of Social Security. Hopefully the government will find some sort of acceptable solution before benefit cuts become necessary, but only time will tell.

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