What Social Security’s $16.8T Shortfall Means for You By Rachel Greszler for CNS News
Workers and retirees have long been warned that Social Security’s trust fund will run out of funds sometime in the future, and that the program has many trillions of dollars in unfunded obligations.
But what does this year’s 2019 Trustees Report, revealing $16.8 trillion in unfunded obligations over the next 75 years and insolvency in 2035, mean for current workers and retirees? (The $16.8 trillion figure includes the $13.9 trillion 75-year unfunded obligation, plus $2.9 trillion in trust fund IOUs that represent additional debt.)
Well, for starters, 2035 is only 16 years away. That means that anyone below the age of 52 today is on track to receive only 75 percent to 80 percent of their scheduled benefits.
But it’s not just younger workers who will receive benefit cuts. Consider people who are retiring in 2019 at age 62: Benefit cuts will kick in for them at age 78.
Social Security’s insolvency is not some far-off event. It will affect virtually all current and future workers and many of today’s current retirees.
Now, let’s move on to the magnitude of Social Security’s $16.8 trillion shortfall.
That’s the equivalent of $107,000 for every worker in the U.S.—roughly two times the average earnings.
That’s also enough to turn young workers into millionaires. If Sara, who just started her first job out of college, put $107,000 into a retirement account and never added another penny, she would have $1,000,000 upon retirement (assuming a 5% real rate of return).
Unfortunately, though, today’s workers are starting out in the hole, instead of ahead of the game.
In addition to already paying 12.4 percent of their paychecks to Social Security, current workers will either have to pay drastically higher taxes—as much as 33 percent more—or receive lower benefits.
If Congress acted today to make Social Security solvent through a 22 percent tax increase, Terrence, another young worker who makes $50,000 per year, would pay an extra $1,400 in taxes each year (an increase from $6,200 to $7,600 per year).
If Congress fails to do anything until the trust funds run out of reserves in 2035, Terrence’s payroll taxes would have to rise by 29 percent, and he would pay $1,800 more per year ($8,000 total in Social Security taxes).