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Social Security won’t be going bankrupt, but …. - Yahoo! Finance
The word “bankrupt” suggests that the Social Security program would disappear entirely, and that is not something which can realistically happen. But Social Security “insolvency” is, in fact, a real possibility – and that’s a scenario where Social Security doesn’t have enough money to pay 100% of its benefit obligations. And insolvency is, indeed, a very real possibility unless Congress takes action very soon to reform the Social Security program.
Social Security revenue (from payroll taxes on working Americans, income tax on SS benefits, and interest on the reserves held in the SS Trust Funds), has been insufficient to pay all Social Security expenses since about 2021. Fortunately, the reserves in the Social Security Trust Funds have been used to pay all beneficiaries 100% of their normal monthly entitlement. But the Trust Fund reserves are being rapidly depleted and will run dry in about the year 2033. Unless Congress enacts reform, that would mean a benefit cut of about 23% for everyone. Not a pleasant thought!
So, how do you prepare for such an event? Well, according to this Yahoo! Finance article by Maurie Backman, if you are working you should boost your savings (especially 401(k) contributions), If you’re not working, evaluate your lifestyle to see if you can make adjustments to reduce expenses. Or you may even look at going back to work, as discussed in this article.
As an example of leading thinking on reforming Social Security, the Association of Mature American Citizens (AMAC, Inc.) believes Social Security must be preserved and modernized to serve future generations. AMAC’s position is that this can be achieved without payroll tax increases through relatively minor program modifications, including changes to the cost-of-living adjustment (COLA) process and modifications to the formulas for calculating initial benefits for higher-income beneficiaries. Changes to the age for maximizing benefits are included in AMAC’s position, along with (1) an increase in the thresholds where benefits are subject to income tax; (2) indexing of these thresholds annually to account for inflation; (3) changing the taxable maximum formula to address the unintended loss of revenue; (4) improving survivor benefits, (5) eliminating the reduction in benefits for those choosing to work before full retirement age; and (6) improving savings tools for future retirees, including a savings account that builds estate value. AMAC is resolute in its mission that Social Security be preserved for current and successive generations and has gotten the attention of lawmakers in D.C., meeting with many congressional offices and staff over the past decade. See AMAC’s proposal for Social Security reform here.