Will Social Security Be Around In The Future?
To answer the question of social security’s viability it is helpful to have a bit of history about the program. Starting in 1935, Social Security was enacted to provide social insurance protection to seniors over age 65. Half of this age group at the time lived in poverty. The Social Security tax is also called Federal Insurance Contributions Act (FICA).
FICA Tax Rates In Different Time Periods:
1940: 2%
1950: 3%
1960: 6%
1970: 9.6%
1980: 12.26%
1990-present: 15.3%
As you can see, the original FICA tax was not always as high as 15.3% of an employee’s income. Some of this increase is due to new benefits provided under the program. Decreasing the retirement age from 65 to 62 began in 1961. Medicare was added in 1965. Inflation adjustments to benefits received were added in 1972. Nonetheless, the tax incurred by workers has substantially increased in the first 80 years of the program’s existence from a meager 2% of income to the current 15.3%.
Starting in the 1981, the country enacted a major tax reform. Part of this reform included adding extra FICA taxes to a trust fund help cover the costs of Baby boomers retiring in the future. Ironically though, while congress decreased federal tax rates and government revenue, they continued to increase government spending. To pay for the increased government spending with less taxes coming in, congress started allowing the government in 1980’s to borrow from the social security trust fund. Now the social security trust fund is owed $2.79 Trillion in funds it has loaned to the government. Starting in the year 2019, the income generated from FICA taxes is projected to be less than is being paid out to retirees. The shortfall will have to begin being paid from the Social Security Trust Fund.
The problem with the Trust Fund is that it is really just an accounting trick. The money isn’t sitting in a savings account earning interest as most people assume. Instead it has been paid out to the federal government since the 1980’s to pay for the government’s annual operations. The trust fund is essentially bankrupt unless the Federal Government raises the funds to pay it back.
That is why congress is starting to raise the alarm bells and try to find ways to correct the imbalance and make the annual income received from FICA taxes more in line with the benefits being paid out. They don’t want to have to increase tax rates when in 2017 they implement the largest tax decrease since the 1980’s.
When people ask me if social security will still be around when they retire, I have to believe that it will be. The reason is simple. Over half of our country has no savings for retirement and would be impoverished without some form of social insurance protection. It is safe to assume though, that various benefits of the program will be changing to minimize how much additional taxes the government will have to raise to pay back the social security trust fund. These changes can include raising the retirement age. It can also include increasing the maximum income that is subject to FICA taxes which is now $129,000. The FICA tax rates may also increase about the current 15.3% to help balance the social security budget.
The short answer to the original question is yes, we most likely will have some form of social security, but you’ll most likely be getting a decreased benefit or paying more in FICA taxes for the same future benefit.