Will Social Security Run Out Before You Die? Part 1
Collecting social security early can greatly affect how much you receive, and how long you’re able to make it last. Likewise, delaying collection can much better in the long run. Many are concerned that the social security tank will be emptied completely in the next few years. But is this possible, with those still working continually paying into it?
One thing is for sure: Benefits won’t disappear entirely.
The trustees of the Social Security system’s finances released their annual report recently, stating the combined trust funds that help pay old age and disability benefits are likely to run out by 2034, the year when today’s 48-year-olds reach full retirement age. Last year’s estimate for the trust fund running out was 2033. But what does it mean to say the Social Security trust fund has run out? Let’s be clear: Social Security benefits won’t disappear entirely when that happens. If nothing else changes, the payroll taxes still being paid by younger people in the workforce. This will be enough to fund about 79% of scheduled benefits, says the report. That’s because Social Security is by and large a pay-as-you-go system. But in fact, it’s never been primarily run on saved money.
Taxes from today’s workers are used to fund the benefits of today’s retirees. But after the system was changed in 1983 and up until 2010, the amount of payroll tax dollars going into the system was higher than the amount of money that was needed to fund benefits. That extra money is in the so-called trust fund. It’s invested in special, un-traded Treasury bonds. Thanks to interest from the Treasuries and taxes on higher-earners, the Social Security system still takes in a bit more money than it pays out each year. But soon that will flip over and Social Security will have to start eating into its past surplus to pay beneficiaries—and 2034 is the year that the surplus is currently expected to run out.