By Investment Associate Bobby Adusumilli, CFA.

When President Franklin Roosevelt signed the Social Security Act in 1935, his initial intention was the following:[1]

*Source: “Historical Background And Development Of Social Security”. Social Security Administration,* *ssa.gov*.

As time went on, Social Security expanded, and many people began relying on it as their primary source of income.[1] As of 2021, almost 90% of people age 65+ in the United States receive Social Security benefits, providing nearly 30% of their income on average.[2] Furthermore, 14% of people ages 65+ rely on Social Security for at least 90% of their income.[2] Social Security also supports disabled, widowed, and divorced individuals.[2]

As a result of its growth, the decline of defined benefits pension plans, and other demographic trends, Social Security’s resources will become increasingly stretched in the years to come.[3][4] The average age in the US has increased significantly over the past 100 years, and people are living longer in retirement.[2] The Social Security Administration projects that there will be 2.3 workers paying into Social Security for each person receiving Social Security income in 2035, compared to 2.7 as of 2021.[2]

In their 2021 report detailing the current and projected future state of Social Security, the Social Security Board of Trustees wrote, “The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, will be able to pay scheduled benefits on a timely basis until 2033, one year earlier than reported last year. At that time, the fund's reserves will become depleted and continuing tax income will be sufficient to pay 76 percent of scheduled benefits.“[4]

*Source: “The 2021 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds”. The Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, 2021,* *ssa.gov*.

With an aging population and less people paying into Social Security, it is natural to wonder whether Social Security will be around for the long-term. Yet even given all of the above concerns, we are optimistic that Social Security will continue similarly (though not the exact same) to its current form for the rest of the 21st century. We believe it is important for too many people to go away.

So what can be done to increase the likelihood that Social Security will persist for the long-term? Building off of potential solutions listed in the book Get What’s Yours: The Revised Secrets To Maxing Out Your Social Security, some combination of the below strategies may help to increase Social Security’s longevity:[5]

Raising the Social Security (FICA) tax rates, which are currently 6.2% for each of the employee and employer (12.4% total) on compensation up to the 2022 Social Security wage base of $147,000.[6] Economist Alicia Munnell of Boston College’s Center for Retirement Research has estimated that raising the FICA tax rates by roughly 1.2% for each of the employee and employer - for a 14.8% total FICA tax - could potentially eliminate the projected Social Security shortfall over the next 70 years.[5]
Increasing the wage base ceiling on FICA taxes, which is currently $147,000. The wage base ceiling grows annually based on the US inflation rate.[6]
Increasing the amount of Social Security benefits subject to federal income taxes. Currently, anywhere from 0% to 85% of Social Security benefits are taxable, depending on your taxable federal income.
Extending the full retirement age, which is currently around age 67 for most people.[8]
Lowering Social Security benefits for Americans with higher incomes.

Certain demographic changes can also help fund Social Security, including:

People working longer, meaning longer periods of time that an individual would pay into Social Security. This is already happening for older generations.[9]
Increased worker productivity, which may lead to more US economic growth. For example, due to technologies developed in recent years, many companies were able to keep operations running relatively well throughout the initial stages of the COVID-19 pandemic, which would not have been possible in the past.[10]

Although Social Security can be complex, a lot of people rely on Social Security income, which is why we help people analyze their options so that they can receive all of the benefits that they are eligible for. If you would like help determining when it would be best for you or someone you love to begin taking Social Security, please feel free to reach out to us.

Important Disclosure Information & Sources:

[1] “Historical Background And Development Of Social Security“. Social Security Administration, ssa.gov.

[2] “Social Security Fact Sheet“. Social Security Administration, 2021, ssa.gov.

[3] “The Rise, Fall, and Complexities of the Defined-Benefit Plan“. Troy Adkins, 23-Aug-2021, investopedia.com.

[4] “Status of the Social Security and Medicare Programs“. Social Security and Medicare Boards of Trustees, 2021, ssa.gov.

[5] Get What’s Yours: The Revised Secrets To Maxing Out Your Social Security. Laurence Kotlikoff, Philip Moeller, & Paul Solman, 2016, Simon & Schuster.

[6] “Contribution And Benefit Base“. Social Security Administration, ssa.gov.

[7] “Income Taxes And Your Social Security Benefit“. Social Security Administration, ssa.gov.

[8] “Retirement Benefits“. Social Security Administration, ssa.gov.

[9] “Seniors Are Working Longer - Out Of Choice And Necessity“. Sasha-Ann Simons, 07-Jan-2020, npr.org.

[10] “How COVID-19 has pushed companies over the technology tipping point—and transformed business forever“. McKinsey & Company, 05-Oct-2020, mckinsey.com.

Statements contained in this article that are not statements of historical fact are intended to be and are forward looking statements. All forward looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected.

Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice. This material has been prepared for informational purposes only.

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