A fear that is increasingly common among the working-age population is retiring with the expectation of receiving the financial support that one deserves after so many years of work… and discovering that there are no funds left or they are not enough for what you, and those of your generation, deserve after so many years of contributing to Social Security.
And this concern is spreading like wildfire with the news that pension funds are expected to run out by 2033. And that is when the question arises: what can be done? Let’s explore the current situation and see what we can do as individuals to ensure that the system remains standing.
What do the projections say about Social Security funding?
2033 is the target date set by the Old-Age and Survivors Insurance Trust Fund (OASI), and after that date they cannot confirm that pensions can continue to be paid in full. That is, if no changes are made. In this case, the fund would only be able to cover 79% of the estimated payments.
On the other hand, the Disability Insurance Trust Fund is a little more optimistic, estimating that they will be able to make 100% of the benefits for all their users until 2098.
For its part, Hospital Insurance (HI) (which includes Medicare) projects that it will be able to pay its full benefits until 2036, and after that it will only be able to cover 89% of the payments.
What about Supplementary Medical Insurance (SMI)?
In this bleak outlook, the SMI estimates that it would not suffer immediate sustainability problems. The reason? It is financed by benefit premiums and contributions from the Federal Treasury, in other words, its funds do not depend exclusively on taxes paid by taxpayers to the federal administration but are financed by other types of premiums.
What can be done to avoid such a situation?
We as individuals can do nothing but watch and continue with our jobs, contributing to the bank. However, it is our elected officials who should take matters into their own hands and increase the payroll tax rate, in addition to increasing wages so that individuals do not suffer so much when it comes to paying their taxes.
Another example proposed by the Administration is to reduce annual cost-of-living adjustments (COLA), which would eliminate 2.5% of each payment to be issued by 2025. However, would that be enough?
What does this mean for the beneficiaries?
Well, you can imagine a person who has been working hard all his or her life hoping that, when he or she retires, he or she can live a dignified life, and the news that appears in the media is that they are going to have to reduce by 79% what he or she receives? Those of us who retire in a few years are going to see a system with far fewer resources and many more changes but, receiving practically only 21% of what we would deserve as retirees, could significantly affect the quality of life we hope to have once our bodies are no longer of working age.
Are there any proposed strategies to stop this?
Yes, the Administration is carrying out several proposals to address this financial crisis.
- First, increase payroll taxes for taxpayers, so that extra resources are generated for these funds.
- As we said, reduce the COLA (which exists to compensate for inflation), so that the sustainability of the system can be extended a little longer.
- Raising the retirement age, for example, would reduce payments made to retirees and could extend the funds for a few more years.
What do I do as a beneficiary?
The main thing is that we will have to save from now on, it is best that you plan in advance the savings that you may have left for your retirement and stay informed about the updates that may be made, because, for now, the future hangs in the balance and we cannot do anything.