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Is Social Security Going Bankrupt? 3 Reasons Not to Worry | The Motley Fool

Millions of older adults rely on Social Security during retirement, and benefit cuts could make it more difficult to make ends meet.

The Social Security Administration (SSA) recently released its latest report on the status of its trust funds. According to current estimates, the trust funds are expected to be depleted by 2034, at which point benefits could be cut by up to 22%.

That’s startling news for anyone who is currently retired or will be retired by 2034, especially if Social Security benefits will make up a sizable portion of your retirement income. However, there are a few reasons not to worry about the fate of Social Security.

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1. Congress may find a solution before 2034

The current predictions for benefit cuts assume that Congress will not do anything to fix the issue before the trust funds run out in 2034. But there is a good chance lawmakers will be able to find some sort of solution before then to prevent cuts.

One possible solution is to raise taxes. The SSA relies primarily on payroll taxes to fund benefits, so the more money there is coming in from taxes, the more there will be to pay out in benefits.

Another option is to increase or eliminate the wage cap. As of 2021, the wage cap is $142,800 per year, and only income up to that limit is subject to Social Security taxes. By increasing or eliminating this cap, the wealthiest workers will be subject to higher Social Security taxes, thus creating more money that can be paid out in benefits.

Some lawmakers have also proposed reducing the wealthiest retirees’ benefits. This solution would result in less money going toward the highest-earning workers, leaving more for lower- and middle-income retirees.

Lawmakers will have to agree on any of these potential solutions to fix Social Security, which could prove challenging. But there’s a good chance Congress will come up with some sort of solution before benefits are cut.

2. Social Security will not go bankrupt

Even if Congress does nothing, Social Security still won’t go bankrupt. It’s true that the trust funds may be depleted eventually, but because the majority of benefits are funded through payroll taxes, your monthly payments won’t go away entirely.

As of right now, the worst-case scenario would be that the trust funds run out in 2034 and benefits are cut by 22%. The SSA will still have enough cash to cover around 78% of scheduled benefits, so you’ll still receive at least some money from Social Security.

Of course, nobody wants their benefits cut at all. But as long as workers continue paying payroll taxes, Social Security will not go away entirely. You may not be able to rely on your benefits as much as you thought, but you’ll still receive monthly checks.

3. You can increase your benefit amount

If benefits are cut in the future, there are steps you can take now to better prepare. By finding ways to increase your benefits, you’ll be able to reduce the effect that potential cuts may have on your future checks.

One way to increase your benefits is to delay claiming benefits. The earliest you can file for benefits is age 62, but by waiting until after that age to claim (up until age 70), you’ll receive more money each month. You could collect up to 32% extra on top of your full benefit amount by waiting until age 70 to file, which can help offset any potential cuts.

Another strategy is to make sure you’ve worked for at least 35 years before you file for Social Security. The SSA calculates your basic benefit amount by taking an average of your wages throughout the 35 highest-earning years of your career. The more years you work, the better chance you have of earning a higher benefit amount.

Social Security benefits could be reduced in the future, but there’s no need to panic. There’s a chance Congress will find a fix for the problem before 2034, and there are also ways to prepare just in case benefits are reduced. By staying informed, you’ll be ready no matter what happens with Social Security.



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