Social Security Trust Fund 2033: Impact and Consequences for Future Retirees

Though introduced in 1935, Social Security has served as monetary relief for millions of America’s retired citizens. This program provides an uninterrupted, reliable income stream to its contributors by means of payroll tax throughout their lifetime. All contributions become monthly payments on reaching their retirement period, meant to satisfy basic shelter, food, and health care needs.

In recent years, however, the program has come under pressure financially. The fund is losing ground more and more to the growing older population and decreasing working population of America. Social Security Trustees, however, are warning in the most recent report that the trust fund’s reserves will be exhausted by 2033 unless something is done to change that. This will pose worries to retirees and future citizens whose program monthly income derives from it.

What are the Social Security Trust Fund and How Does It Work?

The Social Security Fund is administered under the Federal Insurance Contributions Act (FICA). It is funded by the contributions of all employees and their employers at a rate of 6.2 percent of their salaries. The self-employed persons have to pay both segments (employee and employer).

The revenue from the taxes will be spent on paying pensions to current retirees. The surplus will be safeguarded in special treasury securities that are to be maintained by the U.S government. They can be called the Social Security Trust Funds and consist of two main funds:

• Old-Age and Survivors Insurance (OASI)
• Disability Insurance (DI)

For this reason, the fund over the course of years boasted surpluses; that is, tax revenues were more than payments to beneficiaries. However, this trend changed when baby boomers (defined as U.S citizens born between 1946 and 1964) began retiring. Currently, it is payments that are now more than the taxes, thus necessitating the government to withdraw cash from the trust fund.

What Will Happen in the Year 2033?

It is estimated that reserves in the OASI Trust Fund will be completely depleted by the year 2033. This, however, does not mean that Social Security is going to disappear and that any payments will be discontinued as a result of this. It means, really, that at that time the reserves of the fund will be exhausted, and the government will have to make payments using the current payroll taxes.

This leaves the government in the position of being able to afford to pay only approximately 77 to 80 percent of benefits available at the time the trust fund runs out. Since a retired individual today receives some $1,800 in monthly payments, the payment may go down to something like $1,400 after 2033.

The senior population could be particularly affected by what appears to be this costly reduction of 20 to 23 percent, especially to those who depend on Social Security exclusively.

The Reasons Leading to the Drying Up of the Trust Fund

Indeed, multifactorial causes of the Social Security crisis are as follows:

An Aging Population

The population in the US is aging at a fast rate. Retired individuals are constituted mostly by baby boomers and fewer people have occupations.

Low Birth Rate

Birthrate has been declining. With this, there will be fewer working populations in the future to give contributions to the Social Security Fund.

Cap on Payroll Tax

Currently, tax on the Public Security is applied on income of individuals not yearly going beyond $168,600. Those individuals with incomes above this level are exempted from the taxation, denying the government a source of generation for additional revenue.

Economic Inequality and Changes in Employment

The fund has also suffered due to income inequality and to new modes of employment such as the gig economy, which have lowered tax collections.

Possible Remedies to Rescue Social Security

There is a very severe situation; however, several remedies could improve the situation. This was another problem previously discussed in Congress and now under consideration:

Raising the Payroll Tax Cap

This can significantly create additional revenue through raising or eliminating the current threshold ($168,600). It would help in bringing in more contributions from high-income brackets.

Small Increase in Payroll Tax Rate

The increase of each of the employees and the employers by 0.1 or 0.2 percent will collect billions of dollars into the coffers as revenue in future decades.

Increase in Retirement Age

Currently, the FRA is 67 years. Policy-makers have proposed to gradually increase it to either 68 or 69 years to induce balance with increased expectancy at life. Critics claim it unfair because it does not discriminate against the physically worn-out workers at an earlier age.

Adjustments in Benefit Structure

Other recommendations indicate giving lower pensions to the highest-income beneficiaries while giving the same (or better) to low-income earners. This would keep the programs stable and thereby avoid playing with the most vulnerable.

Investment Option Diversification

The trust fund may only invest in securities of the U.S. Treasury. Partially investing the fund in the stock market, or in another secure investment, to improve long-term results would have benefits. However, this is politically and market-risky as is also the case.

What Do Current Retirees Do?

This is in itself a worrying scenario. But it will have to be managed so that panic does not break out.

• First, the payments from Social Security will not cease. After 2033, beneficiaries will still get their benefits in the range of approximately 75–80 percent.
• Second, this has also been proven by Congress. The history of crises that the government has acted on to rescue Social Security proves that.
• Third, personal financial planning is key. There are other sources of income that retirees and those who are about to retire might want to have, such as pension plans, 401(k) savings, or working part-time.
• Fourth, stay informed. Periodic adjustments in planning might be necessary for Social Security Administration (SSA) and Congressional updates.

Broader Economic Impact

If Social Security were to be curtailed, such impacts would not bruise only the old. All main expenditures on rent, food, or medicine are absorbed by outlays made straight from Social Security entitlements; thus, local economies may suffer a battler’s blow.

All the American families whose financial conditions before the devaluation would not allow living on 20% lower benefits would have to tighten their household belts to keep alive an increased poverty threshold with consequent strain on Medicaid or any other social programs.

On the other hand, if all reforms are immediately applied — increased tax threshold or gradual increase in retirement age — the system is set for stability for many years to come. However, if action is delayed, all that will happen is a deterioration of the situation, compelling abrupt and painful decisions.

This Isn’t the End; It Is Instead a Warning

The depletion of the Social Security Trust Fund by 2033 is not the end of Social Security; rather, it is a “wake-up call.” It should wake up the government and citizens.

Without required reforms, benefits may be cut, but Social Security would not die. This subject will fund most important issues in the American political economy for many coming years.

Citizens nearing retirement should strengthen their savings, focus on investing other funds, and let them know that under ever-changing situations, Social Security would remain available but never extinguished.

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