Last week we gave you a brief history of Social Security’s beginnings in meeting the needs of those less fortunate. As those needs continue today, it is vital that we understand the help that SS provides as assistance for basic needs, not as a sole means of income. For some time now, benefits paid to eligible recipients have been exceeding contributions to the SS Trust Funds and our lawmakers are being force to take action in order to save the Social Security program. This is very important to most Americans.
Originally, Social Security only provided retirement benefits to workers with a history of earned income. This fund was primarily a dedicated payroll tax paid by workers and their employers as they earned income. It was a “pay-as-you-go” system. But this changed in 1939 when an amendment extended benefits to dependents and their survivors upon their passing. It was amended again in the 1950s to increase monthly benefits to offset inflation and then to expand coverage to disabled workers and their survivors.
There are two trust funds that pay Social Security’s benefits:
- OASI – the Old-Age and Survivors Insurance Trust
- DI – the Disability Insurance Trust
The OASI trust fund provides monthly benefits to retired workers and their survivors after death, while the DI Trust fund pays the disabled-worker and their survivors. Both funds invest monies not used for current benefits in interest-bearing Federal securities and the interest earned is also deposited into the trust funds. However, fund trustees predict that the combination of receipts and interest will not be sufficient to support eligible beneficiaries and the OASI fund will run out of money in 2034 and the DI fund in 2065. It’s not quite clear what effect the pandemic will have, but likely the funds will deplete two to three years earlier because people will be pushed into retirement earlier.
There are three more situations prematurely draining the coffers of Social Security: aging Baby Boomers; longer-living seniors and decreasing birth rate. A lower birth rate will not provide the number of workers needed to support the increase in beneficiaries who are living longer! Bottom line is lack of funds to support eligible beneficiaries going forward.
Fortunately, disappearance of Social Security is a worst-case scenario. We still have two decades to figure something out before funds are completely gone. Suggestions for a fix include increased taxes, raising the income level after which no more taxes ae due, benefit cuts and upping the age of eligibility – 66 in 2020, but rising to 67 by 2026.
Next week: Will Social Security vanish? How can you help?
Have a great weekend!