For decades I’ve been helping clients determine what might be the optimal time to start Social Security. As I approach the age of 62 myself, I have to start running my own calculations (by the way, waiting to take Social Security is nearly always the better choice).
As my mom says, “I knew old age was coming, I just didn’t realize how fast.”
One concern that I’ve heard repeated over my years in this industry is that Social Security ‘may not be around when I need it.’
If you’ve been keeping an eye on the headlines, you may have heard some unsettling things about Social Security’s future. According to recent reports, the Social Security Trust Fund is projected to run out of reserves by the mid-2030s – give or take a few years. When people hear that, it’s natural to wonder: What happens then? Will benefits just stop? Will I still get my check?
Let me reassure you right away – Social Security won’t just disappear. The system will continue to pay benefits through payroll taxes, which keep rolling in from current workers. However, without changes, benefits could be reduced to about 75-80% of what retirees were promised. That’s a cut no one wants to see. So the question becomes: What can Congress do to shore up the system before that happens?
Fortunately, there are options – lots of them.
Let’s walk through a few of the most talked-about fixes:
1. Raise the Payroll Tax Cap
Right now, only income up to $168,600 (for 2024) is subject to Social Security taxes. Any earnings above that aren’t taxed for Social Security purposes. One potential fix? Raise or eliminate that cap so higher earners contribute more. This change alone could significantly extend the life of the trust fund.
2. Increase the Payroll Tax Rate
The Social Security tax is currently 6.2% for employees and 6.2% for employers. A modest increase – say, by 1% – could gradually build up the fund. While no one jumps for joy at the idea of higher taxes, a small, phased-in bump could make a big difference over time.
3. Adjust the Full Retirement Age
As lifespans have increased, so too has the idea of adjusting when people become eligible for full benefits. Raising the full retirement age gradually – from 67 to perhaps 68 or 69 – has been floated as a way to reduce pressure on the system.
4. Change How Benefits Are Calculated
Congress could adjust the benefit formula, especially for higher-income retirees. This might mean slightly smaller benefits for those who earned more during their careers, while preserving or even increasing benefits for lower-income recipients.
5. Broaden the Tax Base
Some proposals involve tapping into different forms of income, such as investment income or self-employment earnings, to contribute to the Social Security fund. This would spread the responsibility more broadly across the economy.
The Bottom Line? There’s Time and Tools to Fix It
Despite the headlines, Social Security isn’t falling off a cliff tomorrow. Yes, the system needs attention, and yes, some tough choices may lie ahead. But Congress has several viable levers to pull, and many of these fixes could be implemented gradually, giving people time to adapt.
If you’re nearing or already in retirement, stay informed but don’t panic. The system has weathered storms before, and with prudent action, it can be strengthened for ourselves as well as for future generations.
As always, if you have questions about how Social Security fits into your retirement plan, let’s talk.
This commentary reflects the personal opinions, viewpoints and analyses of the Bourke Wealth Management employees providing such comments, and should not be regarded as a description of advisory services provided by Bourke Wealth Management or performance returns of any Bourke Wealth Management client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Bourke Wealth Management manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
