If you've been reading the news about Social Security recently, you've probably noticed that the headlines are pretty frightening.
Specifically, you've likely heard that the most recent Trustees Report comes with a warning that the trust fund supporting the benefits program is slated to run short. If and when this happens, an automatic benefit cut is a very real possibility since Social Security isn't allowed to borrow and can only pay benefits out of revenue coming in.
Now, all of this is true. The combined trust funds supporting the Social Security retirement and disability programs are expected to run out of money as soon as 2035. But, despite that fact, there's actually very little reason to panic about Social Security's future.
Here are three reasons why that's the case.
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1. Projections about Social Security's future showed improvements this year
The first reason not to panic is that projections are just guesses about what's going to happen in the future. Now, it's true they are informed guesses, but no one can 100% know what's coming down the pipeline.
The 2024 Trustees Report, for example, pushed back the date when retirement benefits were supposed to run dry by a full year. This year, they're sounding the warning about a shortfall in 2035 when last year's trustees report said the deadline was 2034. Further, the new projections suggest the incoming revenue will be enough to pay 83% of promised benefits, while last year's report said only around 80%.
The improved outlook is because economic conditions have changed. An upward revision in the level of labor productivity and a lower assumed long-term disability rate both contributed to the positive shift in the numbers. If these trends continue, then Social Security could end up with more money than expected and stay solvent for longer.
In other words, economic growth could save seniors' benefits even without any action from Congress.
Now, there'd need to be some major positive shifts, and the economy would need to grow at an unprecedented rate for Social Security to be financially secure for the long term without some reforms. So, it's unlikely economic growth is going to be the solution by itself. Still, the expected date when cuts would need to happen has already been pushed back for a full year, and a higher-than-expected GDP in the coming years could buy even more time.
2. Running out of money doesn't mean zero benefits
There's another reason not to panic about Social Security's insolvency.
The reality is that revenue is always going to come into the program because of the way it is structured. Retirees are not going to see their benefit fall to $0 unless there's some major unprecedented political upheaval that would mean far bigger problems for the country than just Social Security changes. Even pessimistic projections suggest seniors would still get upwards of 75% of their promised benefits if automatic cuts had to go into effect due to the depletion of the trust fund.
Now, that's not to say that a 17% reduction in benefits wouldn't hurt (that's the current projected cut, assuming the combined trust funds can pay 83% of the promised benefits as mentioned above). However, seniors would not be left with nothing even if the worst happens with Social Security.
3. Congress probably won't allow a big benefits cut
Finally, the last big reason not to panic is that Congress is probably not going to allow a big benefit cut to just happen.
Social Security has long been considered the "third rail" of American politics because lawmakers are so concerned that tackling reforms to such a popular program could impact their careers adversely. If lawmakers allowed a 17% reduction in benefits to happen automatically, they'd likely be coping with a lot of angry seniors. That's not something they want since older Americans are a reliable voting bloc. A big cut could also lead to an increase in senior poverty, which also isn't something any lawmaker would want to boast about in their reelection campaign.
Lawmakers have many options for shoring up Social Security, including just changing the rules so that they can finance benefits with deficit spending as they do with many government expenditures. Lawmakers could also borrow the ideas from the last major Social Security reforms in the early 1980s and opt to raise the Full Retirement Age. Or, they could change how Social Security taxes work to provide more money for the program.
Since politicians will probably act and since stronger-than-expected economic growth could give them more time to do so, no one should panic about possible future benefit cuts. It's still a very good idea to save money so you don't over-rely on Social Security. But you can expect your benefits will be there to supplement your savings and provide the security you deserve.
