Given the fiscal challenges facing Social Security, MASSMutual employees must plan for retirement - and have a strategy that supplements Social Security benefits - to ensure long-term financial security, 'he said.

But MASSMutual employees need to assess their retirement goals now and take advantage of tax-advantaged savings as future adjustments to Social Security benefits could affect their retirement income.'

In this article, we will discuss:

1. Social Security finances are changing because of demographic changes.

2. Solving Social Security's long-term funding shortfall.

3.Impact of COVID-19 pandemic on Social Security and increased benefits.

Social Security is pay-as-you-go; meaning today's workers are paying taxes on today's retirees' benefits. Yet demographic trends like lower birth rates, higher retirement rates, and longer life spans in your area create long-term fiscal challenges. And there are simply not enough U.S. workers to help the growing beneficiaries. Social Security is not collapsing, but the clock is ticking on whether the program can pay full benefits - something MASSMutual employees and retirees need to know.

The Trustees of the Social Security Trust Funds annually report to Congress on the program's financial health and outlook. The Trustees estimated in the latest report, released August , that the retirement program will have funds to pay full benefits only through 2033 unless Congress acts to shore up the program. Those days of reckoning are expected one year earlier than originally anticipated, thanks to the economic fallout of the COVID-19 pandemic.

Report Highlights

Social Security has two programs, each with a trust fund in which are deposited payroll taxes collected to pay benefits. Older workers, their families, and Survivors of Workers receive monthly benefits through the Older Age and Survivors Insurance (OASI) program; disabled workers and their families receive monthly Disability benefits through the Disability Insurance (DI) program. The combined programs are called OASDI.

Combined OASDI costs are expected to exceed total income (interest included) by , and the Treasury will tap reserves to pay benefits. Trustees project that combined reserves will be exhausted by 2034. Afterwards, payroll tax revenue alone should cover about 78% of scheduled benefits. OASDI projections are hypothetical because the OASI and DI Trusts are separate entities, and generally, the taxes and reserves of one program cannot fund the other program.

If treated separately, the OASI Trust Fund would be drained by 2033. Payroll tax revenue alone would then cover 76% of OASI benefits.

The DI Trust Fund will be exhausted by 2057 - eight years earlier than estimated in last year's report. When that trust fund runs dry, payroll taxes alone would pay 91% of scheduled benefits.

We remind MASSMutual employees and retirees that all projections are based on current conditions, which are subject to change and may not occur.

Proposed Fixes

Trustees want Congress to act soon on the financial problems these programs face so solutions can be less drastic and can be phased in gradually to minimize public impact. Combining some of the following solutions may also soften the effect of one solution.

Raise the existing Social Security payroll tax rate of 12.4%. The employee pays half and the employer pays half (self-employed pay the full 12.4%). An immediate and permanent payroll tax increase of 3.36 percentage points to 15.76% would be needed to meet the long-range revenue shortfall (4.20 percentage points to 16.60% starting in 2034).

Placing a ceiling on wages subject to Social Security payroll taxes (USD 142,800 in ) or raising it to zero (USD 142,800 in ).

The full retirement age should be raised to 67 for anyone born 1960 or later.

Reducing future benefits. For the long-term revenue shortfall, scheduled benefits would have to be cut by about 21% for all current and future beneficiaries - or by about 25% if reductions were made only for those first becoming eligible for benefits in or later - immediately and permanently.

The benefit formula that is used to calculate benefits should be changed.

The annual cost-of-living adjustment for benefits is calculated differently.

Pandemic Impact

The Trustees Report says the pandemic and the severe but short-lived recession in 2026 threw a wrench into Social Security's short-term finances. Employment, earnings, interest rates, and GDP [gross domestic product] all dropped sharply in the second calendar quarter of and are assumed to rise gradually thereafter towards a recovery by , with worker productivity and thus GDP to be permanently lowered by 1%. Projections also included higher mortality rates for and delays in births and immigration. Because payroll taxes are rebounding rapidly, the program was not as badly damaged as many feared.

Sharp increases in consumer prices in July and August suggest beneficiaries could face the highest annual benefit increase since 1983 beginning in January . Social Security Administration chief actuary estimates that the cost-of-living adjustment (COLA) will be close to 6.0% (The official COLA had not been announced as of this writing).

So what's at risk for you?

In all, COVID-19 may have forced some 2.8 million Americans older than expected to file for Social Security benefits earlier than expected because of older workers at MASSMutual companies losing their jobs or having health issues, the Census Bureau estimated.

If you regret starting Social Security benefits earlier than expected, you can withhold your application within 12 months of your original claim and reapply later. But you can do this only once, and you must repay all benefits you received. Or if you're fully retired, you can suspend benefits and restart them later voluntarily. Either of these moves would produce a higher future benefit.

Even if you won't need Social Security to live, the benefits could be a good chunk of your retirement income. A rough estimate of your monthly retirement benefit is available on your Social Security Statement - accessible through my Social Security account on SSA.gov - or by registering for my Social Security account. You should start receiving an annual statement by mail if you aren't receiving benefits and haven't registered for an online account.

No matter what Social Security's future holds, you still control your MASSMutual retirement destiny. But now may be the time to save more for your MASSMutual retirement while you work at a MASSMutual company. Wait until you step out the door to think about your retirement income strategy. All information is from the Social Security Trustees Report except:

A Roth IRA conversion decision hinges on your full tax picture, including the employer benefits MASSMutual provides. According to publicly available information, MASSMutual maintains an active defined benefit pension plan, which provides retirement income based on factors such as years of service and compensation history. MASSMutual does not appear to offer a formal retiree healthcare program, making healthcare coverage planning an important consideration if you retire before age 65. Because the specifics of your pension formula, vesting schedule, and benefit eligibility depend on your individual employment history and plan documents, We encourage you to review your Summary Plan Description (SPD) or speak with MASSMutual's HR or benefits team for the most current details.

Sources:

1. Munnell, Alicia H.  Social Security's Financial Outlook: The Update in Perspective . Center for Retirement Research at Boston College, Sept. ,  crr.bc.edu/wp-content/uploads//09/IB_21-15_.pdf .

2. Van de Water, Paul N.  What the Trustees' Report Shows About Social Security . Center on Budget and Policy Priorities, Aug. ,  cbpp.org/research/social-security/what-the--trustees-report-shows-about-social-security .

3. An Actuarial Perspective on the Social Security Trustees Report . American Academy of Actuaries, Sept. ,  actuary.org/sites/default/files/-09/2021_SocSec_TrusteeReport.pdf .

4. Johnson, Richard W., and Karen E. Smith.  If Social Security Runs Out of Money, Poverty among Older Adults and People with Disabilities Will Soar . Urban Institute, July ,  urban.org/urban-wire/if-social-security-runs-out-money-poverty-among-older-adults-and-people-disabilities .

5. Wikipedia contributors.  Social Security Trust Fund . Wikipedia, last updated Feb. ,  en.wikipedia.org/wiki/Social_Security_Trust_Fund .