Social Security has a 'billionaire problem,' advocate warns
In this photo illustration, a Social Security card sits alongside checks from the U.S. Treasury on October 14, 2021 in Washington, DC. If Congress doesnt fix it, Social Security benefits will automatically be cut by 17% in 11 years. (Photo illustrati
"Doomsday." "Go broke." "Apocalypse." They’re all terms that have been used to describe a looming Social Security shortfall. But is Social Security really "going broke"? And are future retirees in danger of losing benefits they paid into for decades?
Despite what you may have seen in headlines, Social Security is not running out of money, Social Security Works Executive Director Alex Lawson explained. There is, however, a funding problem – and without a fix, benefits would automatically be cut by 17% in 11 years.
The most recent report from Social Security trustees predicts that the trust fund earmarked for Social Security payments will be depleted by 2035.
"After the trust fund is exhausted, ongoing revenue, which is forever, can pay 83% of benefits," Lawson explained. "That's a 17% benefit cut, which is absolutely unacceptable – and we will fight that. But it's also definitely not running out of money."
Lawson said when Social Security reforms were implemented in 1983, the projections were based on "pre-funding the baby boom – building up the trust fund that would actually draw down by the end of the need for baby boomers."
"But it’s off by about 20-30 years, and the No. 1 driver is rising wealth and income inequality," Lawson said.
Americans pay Social Security taxes on up to $168,000 a year; anything earned above that amount is not subject to Social Security taxes, Lawson said.
"So much wealth since the ‘80s has accrued above the payroll cap," Lawson explained. "The productivity gains have gone to the ultra-wealthy."
What is Social Security?
When you work, some of your taxes fund Social Security. The government uses those tax dollars to pay benefits to people who have already retired, people who are disabled, the survivors of workers who have died, and dependents of beneficiaries.
While the money is used to pay people currently getting benefits, any unused money goes to the Social Security trust fund. When you retire, the Social Security contributions of people in the workforce, together with the money in the fund, will pay monthly benefits to you and your family.
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"So they basically pre-funded their retirement – people paid in more into Social Security than was necessary to pay current benefits because it's a pay-as-you-go system, so your money doesn't go to a bank account and wait for you and then you get it when you retire," Lawson explained.
To determine the Social Security benefits you will receive, the government calculates a percentage of your highest wages in your top 35 years of earning, and factors in when you choose to start receiving benefits.
According to the Social Security Administration, if you retire at full retirement age in 2024 (67 years old), your maximum benefit would be $3,822. However, if you retire at age 62 in 2024, your maximum benefit would be $2,710. If you retire at age 70 in 2024, your maximum benefit would be $4,873.
The Social Security Administration says as of January 2024, the average monthly retirement benefit was $1,907 or $22,884 per year. The average monthly benefit for a retired couple with both receiving benefits was $3,033 or $36,396 per year.
What’s the retirement age for Social Security?
Benefits can be claimed as early as age 62, but they are reduced, and this reduction in benefits is permanent. Waiting until your full retirement age (FRA) of 67 provides 100% of your eligible benefit. For each year past your FRA, your monthly benefit increases by 8% annually until it maxes out at age 70.
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Example: for a person born in 1962, their monthly benefit would be reduced by 30% if claimed at age 62 (2024) versus waiting until their full retirement age of 67 (2029) to make their initial claim.
Fixing Social Security
When it comes to fully funding Social Security, there are two options, essentially: "Pay more or get less," Kathleen Romig, director of Social Security and disability policy at the Center on Budget and Policy Priorities, told the Associated Press in 2022.
Lawson said to fill the gap, Democrats in Congress want to raise Social Security taxes on the wealthiest Americans. A proposal in the Senate would increase Social Security benefits by raising taxes on those making more than $250,000 a year, while a House proposal – the one President Biden supports – would only raise Social Security taxes for those making above $400,000 a year, Lawson said.
"The problem is not Social Security. Social Security works," he said. "There's no Social Security problem. There's a billionaire problem, and so you’ve got to address the billionaire problem in order to not just have Social Security solvent, not facing an across-the-board benefit cut of 17% in 11 years."
Social Security office, Queens, New York. (Photo by: Lindsey Nicholson/UCG/Universal Images Group via Getty Images)
Republicans have generally been opposed to raising taxes to fund Social Security. A budget plan released by the House Republican Study Committee in March calls for raising the retirement age as a means of filling the funding gap, but the proposal didn’t specify what the new retirement age would be. The GOP plan, presented by a group of more than 170 Republican lawmakers, called only for "modest adjustments to the retirement age for future retirees to account for increases in life expectancy."
Previously, supporters of raising the retirement age have said it should be 69, two years later than the current full retirement age of 67.
The report urges lawmakers to "address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them."
"Social Security will play a critical role in the lives of 68 million beneficiaries and 184 million covered workers and their families during 2024," the report says. "With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations."
The Associated Press contributed to this report.