It seems like we sometimes hear that Social Security is close to running out of funds. But will Social Security ever disappear? Let’s look at why there’s always so much hype around the likelihood that the Social Security system will run out, what lawmakers might do, and how you can protect yourself if you can’t rely on Social Security payments in the future.
Vault’s take on what happens if Social Security runs out. According to estimates, the Social Security trust fund could be depleted by 2037, which could decrease benefits. Adjustments to the Social Security system will likely prevent it from disappearing completely, even if benefits and structure change in the future. Protect yourself from a possible loss of Social Security benefits by having retirement plans that include alternative sources of income in retirement.
Why Is Social Security Necessary?
Social Security was designed to supplement the income of older Americans. But many of them have not been able to save enough to live comfortably in their retirement. In addition, different life circumstances and problems can prevent them from meeting the basic costs of living.
“Social Security was created at the height of the Great Depression in 1935 as a safety net to provide a basic level of financial relief and protect American families, especially the elderly, during the economic crisis,” says Pam Krueger. , founder and CEO of Wealthramp. “The loss of Social Security support would leave millions of low-income older Americans on the streets and would have a devastating impact on the overall economic health of the country.” The Social Security Administration reported that Social Security benefits represent about 30% of the income of people over 65 years of age.
How Is Social Security Financed?
Social Security is funded through payroll taxes. Employers and employees contribute to the system, each paying 6.2% on income up to $168,600 in 2024. Self-employed workers pay 12.4%, which covers both the employer and employee portions. The amount of taxable income subject to Social Security taxes has adjustments every year, based on IRS calculations.
The taxes contributed by workers today finance current beneficiaries. Taxes collected in excess of what is used to pay benefits are held in a trust fund. But there are fewer workers for each beneficiary and retirees live longer and receive benefits for decades, which has contributed to slowly depleting the fund.
Why Social Security Is Expected to Run Out in 2037
When experts and politicians talk about Social Security being depleted, they mean there is a depletion of the trust fund. Experts suggest that fewer workers and increased life expectancy are the most influential factors contributing to the risk of Social Security running out in 2037.
Fewer workers available to support the Social Security Fund. “Think of it as a checking account with automatic payments,” said Devin Carroll, an investment advisor. “Money comes in and goes out. The problem is that there are not enough workers to support the growing number of retirees.” It indicates that in 1950 there were 16 workers for each beneficiary. Currently, there are less than three workers for each beneficiary.