One of the most popular Social Security stories is whether the program will run out of money, and when. The long answer is complicated. But the short answer is that Social Security isn’t going to run out of money anytime soon unless something unforeseen happens — although future recipients may have to get by on lower monthly payments than current recipients.
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Retirement and survivor benefits are paid from the Old-Age and Survivors Insurance (OASI) Trust Fund, which is funded primarily by payroll taxes, according to the Urban-Brookings Tax Policy Center. Payroll taxes also fund the Disability Insurance (DI) Trust Fund, a separate Social Security program that pays disability benefits.
A 2022 report from the Social Security and Medicare Boards of Trustees predicted that the combined OASI and DI funds “could make timely payments of scheduled benefits through 2035,” after which the reserves of the combined funds will be depleted. At this point, payroll tax revenue will be enough to pay only about 80% of the planned benefits, rather than all benefits.
This shortfall will mainly affect the OASI trust fund and not the DI trust fund. According to the Social Security Administration, the DI fund will no longer be depleted within the 75-year projection period.
In terms of the OASI fund, Social Security for Retirement and Survivors will not run out of money once reserve funds are exhausted. However, the program will have to find a way to get by on less money while still ensuring that Social Security beneficiaries receive the full, timely benefits they are legally entitled to.
One option would be for Congress to restore financial balance by cutting planned benefits immediately by about 20% to make up for the projected shortfall, according to a September Congressional Research Service report. The required reduction would gradually increase to 26% in 2096.
Another option would be for Congress to raise the Social Security payroll tax rate from the current 12.4% to 15.6% after the exhaustion in 2035, then gradually increase it to 16.7% in 2095.
While those options remain up in the air, other proposals have been discussed by current members of Congress. As previously reported by GOBankingRates, a plan released by the Republican Study Committee over the summer would realign the full retirement age (FRA) of Social Security to account for increases in life expectancy. This means that the Social Security FRA would increase to age 70 from the current FRA of 66 and 67 years old, theoretically strengthening Social Security funds.
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Another bill introduced by Rep. Peter DeFazio (D-Ore.) and Sen. Bernie Sanders (I-Vt.) would increase monthly payments to Social Security recipients and also boost program funding by reducing payroll taxes from the apply Social Security to all income over $250,000. Currently, income over $147,000 is not subject to Social Security tax.
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This article originally appeared on GOBankingRates.com: Will Social Security run out of money soon?