According to the Social Security Administration, a recent report showed that almost half of retired workers rely on Social Security for at least 50% of their income, with 21% of married couples and 45% of unmarried individuals relying on Social Security for 90% or more of their income. Considering that approximately 94% of American workers are covered by Social Security and 65 million people are presently receiving benefits, maintaining the health of Social Security is a top priority. Social Security is not in danger of going bankrupt because it is predominantly funded by payroll taxes, but its financial health is deteriorating and benefits may be reduced if Congress does not act. As an employee of American Family who may be eligible for these benefits, it is essential to monitor policy changes and reductions.
Annually, the Trustees of the Social Security Trust Funds provide Congress with a comprehensive report evaluating the financial health and outlook of this program. For employees of American Family, remaining current on these reports could allow for better financial planning. The most recent report, released on June 2, 2022, indicates that the pandemic's effects were not as severe as predicted in last year's report; this is positive news for American Family employees this year.
Overall, the news is mixed for Social Security
As an employee of American Family, it is essential to understand that the Social Security program is comprised of two separate programs, each with its own financial account (trust fund) that holds the payroll taxes used to pay Social Security benefits. The Old-Age and Survivors Insurance (OASI) program provides monthly benefits to retired workers, their families, and the survivors of workers; the Disability Insurance (DI) program provides monthly benefits to disabled workers and their families. As an employee of American Family, you must review these benefits to determine if you or your family members qualify. These accounts also receive reimbursements from the General Fund of the United States Treasury and income tax revenue from benefit taxation.
As an employee or retiree of American Family, you should be aware that money not required in the current year to pay benefits and administrative expenses is (by law) invested in interest-bearing, government-guaranteed Treasury bonds. The Social Security Trust Funds have accumulated reserves that can be used to cover benefit obligations if payroll tax revenues are insufficient to pay full benefits, and these reserves are currently being depleted. Due to an aging population and other demographic factors, worker contributions are no longer sufficient to finance existing benefits. As an employee of American Family, it is essential to evaluate these trends and prepare for potential financial difficulties.
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On ssa.gov, you can view a copy of the 2022 Trustees report.
Many options for improving the health of Social Security
- Raising or eliminating the cap on wages subject to Social Security payroll taxes ($147,000 in 2022). Raising the complete retirement age above the current age of 67 (for those born after 1960).
- Increasing the age of early retirement beyond the current 62
- The reduction of prospective benefits. To address the long-term revenue shortfall, it would be necessary to immediately and permanently reduce scheduled benefits by approximately 20.3% for all current and future beneficiaries, or by approximately 24.3% if reductions were applied only to those who initially become eligible for benefits in 2022 or later.
- Changing the calculation formula for benefits.
- Using a distinct method to calculate the annual cost-of-living adjustment (COLA) for benefits.
You can find a comprehensive list of potential solutions at ssa.gov/OACT/solvency/provisions.
Conclusion
Social Security can be compared to a sturdy bridge that provides a crucial pathway for retirees to cross from their working years to a financially stable retirement. Just like a bridge requires regular maintenance and upgrades to ensure its longevity, Social Security must be carefully monitored and updated to keep up with changing economic and demographic conditions. By understanding the importance of this 'bridge,' retirees and American Family workers can make informed decisions about how to maximize their Social Security benefits and ensure a smooth transition into retirement.
Reference(s):
1) Administration of Social Security, 2022
2) Social Security Administration, 'Retirement Benefits,' 2021