New York Estate Planning & Elder Law Blog
The Social Security Program is 86 years old and has become a fundamental aspect of how many aging people pay for expenses. Despite its vast importance, social security is full of challenges and weaknesses.
Estate planning professionals once referred to a “three-legged stool” for retirement planning in this country. The three legs included a pension, personal savings, and Social Security payments. Pensions that secure income is not nearly as common as they once were. Furthermore, a very small portion of people in the United States has support from each of these three legs.
Since 1940, however, Social Security has remained a steadfast source of payment. Many people, however, are uncertain about the program’s future. While the program’s demise is not granted, Social Security’s funds are certainly on a downward trend and they must be fixed if they’re to last. If Congress fails to take action, very soon Social Security might lack the funds to pay its promised benefits.
The Value of Social Security
Social Security is a valuable program and over 21 million people in this country would be left below the poverty line if the program did not exist. Besides sending eligible parties retirement benefits each month, Social Security provides ongoing income to surviving spouses as well as their children. Social Security Disability Insurance plays the valuable role of paying monthly bills for qualified workers who are disabled.
Despite the great value of Social Security, problems lie ahead. Currently, the financial accounts that the program collects from when making annual payments are greater than annual tax collection. As a result, Social Security will be deprived of money in approximately 12 years. When this happens, the program would only contain ongoing tax revenue to fund payments and would only be able to pay approximately 78% of all promised payments.
Part of the reason the Social Security Administration will encounter trouble is demographics. The number of individuals who receive Social Security benefits in 2034 will be double the number of beneficiaries who received Social Security benefits in 1985. What compounds the problem is life expectancy. Over the last 80 years, life expectancy has increased by approximately 6.5 years. As a result, a much larger number of workers are receiving Social Security benefits for a longer duration.
What Led to Problems with Social Security
Most Americans have paid into the Social Security Administration since they started working. After the Social Security Administration compensates beneficiaries, any remaining tax dollars are placed in trust funds so they can be utilized at a time when taxes coming into the system are not adequate to pay for ongoing benefit payments. This situation is now occurring. To compensate for its shortfall, the Social Security Administration has begun drawing on these trust funds. Unfortunately, without any substantial changes, the Social Security fund will be emptied in 2034. Unfortunately, 2034 is 24 years earlier than what the agency predicted when it performed a detailed review in 1983.