The recent release of the Social Security Trustees Report on May 6th has sparked a flurry of alarming headlines suggesting that Social Security is on the brink of running out of money by 2035 and that benefits might be cut to 80%. However, a closer look at the report reveals a more nuanced picture.
At Cardinal Advisors, we’ve taken the time to thoroughly review the report and break down its key findings for you. Here’s what you need to know:
The Financial Status of the Social Security Trust Fund
As of the end of 2023, the Social Security Trust Fund holds nearly $3 trillion, all invested in long-duration federal bonds. While these bonds yield a low interest rate due to historically low interest rates over the past 15-20 years, they still provide a steady income
Expenditures and Revenues in 2023
Total benefits paid: $1.384 trillion
Administrative costs: $7.2 billion
Total revenue: $1.2 trillion from payroll taxes, $66 billion from bond interest, and $49 billion from income taxes on benefits
Despite these revenues, there was a shortfall of $41 billion, which was covered by the Trust Fund. This means the Trust Fund’s balance didn’t dramatically decrease, thanks to substantial revenue inflows from payroll taxes and other sources.
Misconceptions in the Media
The headlines predicting an imminent collapse of Social Security often miss key details. The projections indicate that if no changes are made, the Trust Fund may deplete by 2035, leading to potential benefit reductions. However, even in this scenario, benefits would still be funded by ongoing payroll taxes, ensuring that beneficiaries continue to receive payments, albeit at a reduced rate.
Historical Context and Future Solutions
Increasing the full retirement age from 65 to 67, phased in gradually over 40+ years.
Implementing taxes on Social Security benefits for higher-income individuals.
Raising payroll taxes to the current rate of 6.2% from both employees and employers.
These measures successfully extended the solvency of the Trust Fund for decades. Looking ahead, similar adjustments could be made:
Further raising the retirement age
Adjusting payroll tax rates
Increasing the income cap subject to Social Security taxes
Making Informed Decisions
When deciding when to take Social Security, it’s crucial to base your decisions on accurate information rather than sensational headlines. Social Security is a significant part of your retirement planning, and making the right choice can impact your financial well-being for years to come.
Call to Action
We encourage you to put pressure on your elected officials to address these issues proactively. The sooner adjustments are made, the less drastic they will need to be.
At Cardinal Advisors, we’re here to help you navigate these complex decisions. For more detailed insights, check out our video where we discuss the Trustees Report in depth. You can find the full report and our summarized key points in the show notes linked below the video.
Feel free to reach out to us with any questions or for personalized advice on your financial planning needs.
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