May 17, 2023

No, Social Security Is Not Going Bankrupt

By Alynne Zielinski, MBA, CFP, CDFA, Manager, Financial Planning, Marcum Wealth

No, Social Security Is Not Going Bankrupt Wealth Management

Headlines are in large font for a reason; they are designed to catch your attention and pull you in. At times, they can be vague, misleading, or even downright scary. The commentary around Social Security is not immune to these attention-grabbing tactics. Can Social Security fund retirement for current and future retirees? Some recent headlines proclaimed ’Social Security is insolvent’ and ‘Social Security will be bankrupt.’ Taken in context, one might think the whole system is threatened and ready to implode, but that is not the case.

Currently, Social Security has two sources of funding:

  1. Employees and employer payroll taxes; and
  2. the Social Security Trust Fund.

Payroll Taxes

The primary source of funding for the Old Age Survivors and Disability Insurance (OASDI) program is the FICA tax paid by employees and employers. The money each of us pays into Social Security is used to pay the benefits of current Social Security beneficiaries. FICA taxes support about 76% of the program’s total cost.1

Social Security Trust Fund

The Social Security Trust Fund had approximately $2.8 trillion in assets at the end of 2022.1 The Trust Fund is required by law to invest only in U.S. Treasury bonds, which are bonds backed by the full faith and credit of the U.S. government. The interest rate on these bonds is set by law and is currently quite low. When the Trust Fund needs to pay benefits that exceed its income from payroll taxes and interest on its investments, it redeems some of these bonds. The Social Security Trust Fund is projected to be depleted in 2033.1 However, this does not mean Social Security will be bankrupt or default. Why? Because of the other funding method for Social Security, payroll taxes.

Why is the Trust Fund Being Depleted?

There are many reasons why the Trust Fund is slowly dwindling.

  1. The baby boomer generation is retiring, tipping the Social Security scales for the first time. As boomers exit the workforce and begin claiming Social Security, demand is starting to exceed supply.
  2. People are living longer, and life expectancy continues to rise.
  3. Birth rates are declining, causing the number of workers paying into the system to decline.

With fewer payroll taxes, more stress is placed on the Trust Fund. As a result, the Trust Fund is liquidating assets to help fully fund Social Security.

Although the Trust Fund is projected to be depleted in 2033, Social Security will not be insolvent or bankrupt. Although it may not be able to pay 100% of the program’s cost, as it stands now, Social Security estimates it will be able to cover approximately 76% of the program’s cost due to employee and employer payroll taxes.1

So, no. Social Security is not going bankrupt.




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