Social Security Celebrates 90 Years - Critical Information You Should Be Aware Of
In January 2025, a significant step was taken towards securing the future of public-sector workers with the passing of the Social Security Fairness Act (SSFA). However, the Social Security system still faces a projected insolvency around 2033, prompting a search for viable solutions.
The Social Security trust funds, financial accounts in the U.S. Treasury, have been the backbone of the system since its inception. These funds, divided into the Old-Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund, hold Social Security taxes and other income.
If the OASI Trust Fund becomes depleted in the first quarter of 2033, current revenues would only cover 77% of current benefits, leading to a reduction in benefits of 23%. This potential scenario has sparked a national conversation about how to address the issue.
Key proposals include raising the full retirement age beyond the current 67 to 68 or 69, which would reduce the period during which benefits are paid, easing financial pressure. However, this could be challenging for some workers who may find it difficult to delay retirement.
Another proposal is to increase the Social Security payroll tax rate, a move that would directly boost revenues but faces political resistance due to public aversion to tax hikes.
A third solution is to eliminate or raise the maximum taxable wage cap, currently $168,600. This could significantly increase revenue given wage growth among high earners.
A more innovative idea is to establish a Sovereign Wealth Fund separate from the existing trust fund, invested in stocks, bonds, and other assets to generate higher long-term returns. This idea, supported by Senator Bill Cassidy, draws on the success of similar funds in pension plans and the Railroad Retirement program to stabilize and grow Social Security finances.
Lastly, policy reversals or mitigations of laws that have recently accelerated insolvency, such as the income tax reductions for seniors in the One Big Beautiful Bill Act (OBBBA) and provisions allowing some government workers to “double dip” Social Security benefits, which cost the trust fund hundreds of billions over a decade and worsened the shortfall, are also being considered.
If no intervention occurs, the Social Security retirement trust fund will become insolvent around 2033, triggering automatic benefit cuts of approximately 23-24%. While such cuts would be politically difficult, Congressional action is widely expected to prevent or soften this outcome.
It's important to note that the average monthly Social Security check for retirees is $2006.69 as of July. A 23% cut would translate into losing almost $461.54 per month, or $5,538.46 per year.
Significant changes to the Social Security program, often referred to as the "third rail of politics," are rare. Until 1975, annual benefit increases for Social Security were determined by the legislature.
As we move forward, it's crucial to engage in open and informed discussions about the future of Social Security, ensuring its sustainability for future generations.
- The Social Security Fairness Act passed in January 2025 aims to secure the future of public-sector workers, but the system still faces an insolvency around 2033.
- Proposed solutions to address the projected insolvency include raising the full retirement age, increasing the Social Security payroll tax rate, eliminating or raising the maximum taxable wage cap, and establishing a Sovereign Wealth Fund to invest in assets for higher long-term returns.
- If no intervention occurs, the Social Security retirement trust fund will become insolvent around 2033, leading to a reduction in benefits of about 23-24%.
- Engaging in open and informed discussions about the future of Social Security is crucial to ensure its sustainability for future generations, as significant changes to the program are rare and often met with political resistance.
