The Ways and Means of What Will Become of Social Security

As headlines increasingly spotlight a potentially shaky future for Social Security, the irony becomes evident: is the safety net meant to safeguard our retirement facing an uncertain fate? Let’s take a look at how Social Security’s summer is going so far…

Back in June, the House Ways and Means Subcommittee on Social Security held a hearing on the financial health of our Social Security Trust Funds. This has inspired a plethora of headlines most of which paint a pretty dire picture.  So we decided to listen to the two-hour testimony ourselves.

If you have ever listened to a full Congressional testimony on any subject, first of all, our condolences. Second, it can be a bit of a mixed bag of facts, statistics, ‘gotcha’ moments, opinions, and a few arguments. When it finally ends, you are left wondering what – if anything – was accomplished.

Let’s start with the FACTS – these were not contested, and both sides of the aisle do indeed agree we have a problem.

• Last month the Social Security Board of Trustees released its annual report on the fiscal status of the program – projections showed they won’t be able to pay full benefits in less than ten years…and could produce benefit cuts between 21%-25%
• The Social Security program costs an average of 4.5% of GDP (1994-2023) and is projected to grow to 6% by 2034
• This cost growth is not sustainable as we have more baby boomers reaching retirement age – more people will be collecting social security for longer periods of time and there are fewer workers….a trend that is expected to continue for decades

The three witnesses* all delivered similar conclusions – in the next decade or so Social Security will not be able to pay out the full amounts of scheduled benefits.

*Stephen Goss – Chief Actuary Social Security Administration, Dr. Phillip Swagel – Director Congressional Budget Office, Barry Huston- Analyst of Social Policy Congressional Research Service

Social Security is just like a business or any household – if year after year money going out is more than money coming in, you’re headed for a problem.

We won’t bore you (too much) but here is how it works – Social Security has a Trust Fund so they do have a cushion. They can hold some assets in an account that earns interest and use that money to pay out benefits when they need help – just like when you have to dip into savings because maybe this month you had an extra expense or two. However, as we all know, that cannot continue forever.

Turns out that starting in 2021, Social Security began operating with annual deficits, meaning the program has needed to dip into its ‘savings accounts’ to cover scheduled benefit payments. This is simply not sustainable.

The good thing is, if you have warning – which we do – you can take action to avoid a catastrophe. A few things that continue to be discussed:

• CBO recommends immediate payroll tax increases of 4.4% or equivalent benefit cuts to sustain scheduled benefits through 2098, accounting for economic uncertainties.
• Rep Sanchez (D-CA) suggested immigration reform and the witnesses nodded to confirm that creating legal paths to citizenship would then lead to more money being paid in payroll taxes into the system
• Democratic consensus seemed to be that the simplest way is to close the gap, or rather raise the cap – and NOT raise the retirement age and NOT cut benefits
• Regarding raising the cap – as of 2024 the first $168,600 in earnings are subject to payroll tax. One of the witnesses estimated that someone earning $1 Billion pays about 0.1% of their salary versus someone earning $50k a year pays 6.2% of their earnings

The hearing underscored the importance of bipartisan collaboration and timely legislative action to ensure the long-term viability of Social Security benefits for current and future generations.

A few weeks later the House Appropriations Committee met on their 2025 Labor, Health and Human Services, Education and Related Agencies spending bill – a lot of stuff for one bill! Among many other spending cuts, Social Security made the list in a move to cut back on funding for their administrative budget. Administrative cuts typically don’t directly reduce benefit amounts but of course there are other implications. The measure was approved last month.

Then, just a few days ago the Senate Appropriations Committee approved $14.7 billion for the Social Security Administration’s expenses — an increase over fiscal year 2024, more than the House bill proposed, but less than what the President requested. Let’s just say Social Security hasn’t been relaxing at the beach all this time – we’ll keep you posted.

Stay tuned, next week we’ll examine what happens when our Social Security Offices are understaffed and overworked and how it affects you….