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  • Writer's pictureMercedes Petrellis

Is Social Security Running Out of Money?

July 2023


Jack Bogle, Vanguard’s founder, famously said he could fix Social Security in five minutes. Unfortunately he passed on before being given the chance.

Actuaries know what needs to be done. A successful formula considers factors such as the number of workers paying into the fund, the amount of benefits being paid and the overall growth of the economy.

According to the latest estimates, cash reserves will be depleted by 2035. That’s if Congress doesn’t take action, which is a distinct possibility. But running out of funds doesn't mean social security benefits will vanish. On a cash-in cash-out basis Social Security will still be able to pay around 80% of benefits. “Those who claim that Social Security won’t be around at all when today’s young adults retire either misunderstand or misrepresent the trustees’ projections,” writes Kathleen Romig, director of Social Security policy at the Center on Budget and Policy Priorities.

It’s impossible to overstate the importance of Social Security because 66 million Americans depend on it. For over half of households led by someone aged 65 or older, social security benefits are at least 50% of their income. It keeps more than 26.5 million people from falling below the poverty line.

To avoid any shortfall, Congress will have to take measures like increasing maximum taxable earnings (it’s $160,200, up from $10,000 in 1973), extending the retirement age, reducing benefits overall (or perhaps based on the individual’s income) and redirecting government revenue, or a combination of some of the above. During recent negotiations over raising the nation’s debt ceiling, Congressional leaders agreed to take Social Security reductions off the table. They know how important Social Security is and also know that for politicians it’s an electrified third rail.

Some folks agonize over when to take social security. The quick answer is at 70 unless you need the money and/or you have health issues. 37% of recipients take it as early as they can. Only 5% wait until 70. If you like the idea of lifetime annuity payments you want to maximize this one.

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