A new trustees report provides some scary projections about Social Securitys future.
Social Securitys trust is now expected to be depleted by 2034.
Thats one year sooner than originally estimated, in part due to the economic shock of COVID-19.
Taken out of context, the numbers look frightening.
But if you understandhow Social Security works, youll see that things arent quite so dire.
Neither statement is true.
Here are five common myths about Social Securitys future.
But workers are still paying into the system.
As long as they continue to pay in, Social Security wont go broke.
For decades, Social Security took in more than it paid out in benefits.
Thats how it amassed $2.9 trillion in reserves.
The latest projections estimate that those reserves will only last until 2034.
At that point, Social Security will still bring in money from payroll taxes.
But payroll taxes alone would fund just 78% of Social Securitys obligations.
But thats if Congress does nothing.
That seems highly unlikely.
Social Security is widely popular with voters across the political spectrum.
Probably not as good as youd like.
It always seems like an uphill battle to build (and keep) a decent amount in savings.
But what if your car breaks down, or you have a sudden medical bill?
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Lawmakers could raise thefull retirement age, as they did in 1983.
They could also increase the payroll tax rate or raise the ceiling on payroll taxes.
In 2021, workers pay Social Security taxes only on the first $142,800 of earnings.
Congress could also borrow more money to make up for the impending shortfall.
Even the youngest workers can expect to receive benefits someday.
By 2095, payroll taxes would still cover about 74% of scheduled payments.
Myth: The Government Drains Social Security to Pay for Other Programs.
The truth:Social Security has two trust funds: One pays retirement andsurvivor benefits.
The other pays disability benefits.
Both are funded through payroll taxes.
Neither is used for the general fund, which finances the federal governments operations.
These arebondsissued by the federal government.
Bonds are debt instruments.
The federal government then pays that money back to Social Security, plus interest.
But its too early to determine COVID-19s long-term effects on Social Security.
Hundreds of thousands of lives have been lost to the pandemic.
That tragedy lowers Social Securitys short-term costs because fewer people will receive benefits.
Forecasters estimate that mortality will remain higher until 2023.
The reduction in costs has been overshadowed by the drop in payroll taxes due to massive unemployment in 2020.
Immigration and birth rates both fell steeply during the pandemic.
Both decreases are expected to decrease Social Security revenue over time.
What Does This Mean for You?
Dont panic over the latest trustees report.
you might still expect Social Security to be around in 2034 and beyond.
Social Securitycost-of-living adjustments, or COLAs, lag behind the actual cost increases seniors face.
Benefits have lost 30% of their purchasing power since 2000, according to The Senior Citizens League.
Social Security replaces about 40% of earnings for an average worker who retires at age 65.
Benefits are expected to replace a shrinking percentage of income for younger generations.
Its essential to start saving for retirement as soon as possible.
If your employer offers a401(k), contribute at least enough to get your company match.
Also consider saving in anindividual retirement account (IRA).
you’ve got the option to still count on receiving Social Security someday.
But your monthly checks should only be one component of your retirement plan.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder.
She writes the Dear Penny personal finance advice column.
Send your tricky money questions to[email protected].
When you log into your bank account, how do your savings look?
Probably not as good as youd like.
It always seems like an uphill battle to build (and keep) a decent amount in savings.
But what if your car breaks down, or you have a sudden medical bill?
